As Federal Reserve Governor Michelle Miran has indicated, we are reaching the limits of this experimentation with interest rates. She thinks they’re at least 200 basis points too high. Miran’s comments come at an interesting time as calls to recalibrate monetary policy gain momentum. The real focus of this policy is on continuing to decrease interest rates in 2026 and 2027. She has made it her mission to reduce these rates. Her larger exercise, however, is to cool inflation back down to her 2% target.
In a speech earlier this month, Miran explained her vision for the future of monetary policy. She made the case for a string of 50 basis point reductions. The slowdown these cuts trigger will quickly force the Federal funds rate to realign with economic realities. This strategy aims to minimize the danger associated with overly aggressive increases in short-term interest rates. She contends that these high rates would lead to avoidable worker and public sector layoffs and increased unemployment. That’s why Miran is deeply conscious of the pressure to keep people employed, to keep the economy humming.
Miran follows this with an analysis with Taylor-type rules. This rules-based monetary policy guideline focuses on finding the appropriate level of interest rates by targeting inflation and economic production. She made it clear that her approach is not overly rigid with respect to the regulations. Rather, she plays it by ear and looks at the larger economic picture. This fluidity gives her the policy flexibility to focus on numerous issues driving inflation and employment as she makes recommendations on monetary policy.
The governor’s targeting rent price growth. She forecasts that it will decline from today’s 3.5% to a mere 1.5% by 2027. She thinks taming rental costs is going to be a big part of getting inflation more generally under control. Miran brought up one powerful point on the connection between immigration policy and housing costs. He noted that even getting to net zero immigration would result in only a one percentage point drop in annual rent inflation.
Miran further unpacked the positive effect on the U.S. economy from international loan guarantees provided by East Asian countries. She noted that these financial instruments increase the capital flow. They further assist in reducing the neutral interest rate by at least 0.2 percentage points. This effect only helps strengthen her case for the need of interest rate increases.
Miran is looking forward to working hand-in-hand with the new Federal Reserve board staff. For that reason, she now wants to use their forecasts to shape her future investment decisions. She enjoys learning from different points of view. Fusing them with data-driven insights, she’s steering toward the economic challenges that lie ahead.
Miran’s strategic approach aims to balance two critical objectives: bolstering employment while simultaneously tamping down inflation. She calls for lower interest rates. In recalibrating monetary policy, she seeks to create an environment conducive to sustainable economic growth.