In a recent speech, then-Federal Reserve Governor Stephen Miran raised alarm about the crisis level of U.S. interest rates. As he illustrates, the neutral rate is under major pressure to go lower. Miran, who previously served as the head of former President Donald Trump’s Council of Economic Advisers, took a leave from this position to fill a vacated term on the Fed’s Board.
In the course of a recent discussion, Miran provocatively stated. His main point was that the neutral rate of interest is probably much lower than most economists think today. He argued that the existing interest rates are exerting excessive pressure on the economy, which could hinder growth and employment.
Miran’s bottom line is that the Federal Reserve has a long way to go. He continued, “I consider policy to be quite restrictive, (and) think it presents a significant risk to the Fed’s dual mandate of maximum employment.” His comments signal the increasingly darkening mood among some policymakers regarding the dangers being wrought by today’s monetary policy on the stability of our economy.
As for how former President Trump’s economic policies will affect the Taylor rule, here’s what the Governor had to say. This key formula in monetary policymaking examines the neutral rate, inflation, and indicators of economic output. Miran’s perspective has the potential to change the way policymakers think about interest rates in the future.
He is calling the Fed to reduce its benchmark federal funds rate by almost 200 basis points. This indicates a clear case for profound changes at a minimum in the current monetary policy framework. In order to get down this much, Miran proposed a total of eight quarter-point cuts or four half-point reductions.
Miran’s sentiments align very well with an emerging and strong argument for a more accommodative monetary policy to help drive economic recovery. He believes it is time to reevaluate the level of interest rates. By taking these actions, we’ll foster a stronger economy and better equip the central bank to achieve its statutory dual mandate of maximizing employment and stabilizing prices.