MNI INTERVIEW: Fed’s Miran Sees Substantial Rate Cuts In 2026

Federal Reserve Board Governor Stephen Miran told MNI on Monday the FOMC needs to cut interest rates substantially this year because underlying inflation is near target and a hesitancy to lower borrowing costs has already unduly damaged the labor market.

Recent weakness in the labor market, which saw the jobless rate increase to a four-year high of 4.6% in November, could have been prevented by more consistent monetary support from the central bank, Miran said in an interview.

“I would say the labor market has been on a trajectory of gradual weakening, in large part because of Federal Reserve policy,” he said. 

“And with the unemployment rate having crept higher and with various survey measures showing a job market that increasingly favors employers, it seems clear where the trajectory is and, given the inflation outlook, it seems inappropriate for us to try to maintain that trajectory and push it even farther.”

CATCHING UP

Miran, who has dissented in favor of larger 50-basis point cuts at all three Fed meetings he's attended thus far, said he penciled in 150 basis points of rate cuts for this year in the December Summary of Economic Projections, up from 100 basis points in his September forecast.

“My previous dot was preconditioned upon the Fed pursuing the right policy, and as long as we keep policy at what I think of as materially too tight, we're reducing my growth expectations in the future,” he said. “That requires looser policy now to offset that.”

Other reasons for the downward revision were greater damage from the government shutdown and more dovish readings on employment and inflation than he had expected, Miran said. Futures traders are currently pricing in just over two quarter-point cuts for the year.

The way shelter and financial services costs are imputed in traditional inflation measures is significantly overstating price pressures in the economy, Miran said. 

“Once you extract from both of these distortions, underlying inflation is running at around 2.3%, which is basically within noise of our target,” Miran said. Headline and core CPI in November rose at a 2.7% and 2.6% rate, respectively.    

“Because average tenant rents appear finally to have caught up to new tenant rents, and because market rents have been running at a 1% rate for a couple of years, that gives me a lot of confidence that we're going to see CPI rents really start to decelerate in the near future.”

UNDERSHOOT RISK

Miran said inflation is making such swift progress that it actually has the potential to undershoot the Fed’s 2% target. His expectation for a large looming inflation drag from shelter means that even sticky goods prices would not derail his view.

“I actually don't need a decline in goods prices to hit my inflation forecast.  My inflation forecast is driven entirely by things that are not core goods. And so I can tolerate higher inflation from goods for a sustained period of time, in large part because I have such aggressive shelter disinflation marked in my forecast,” he said.

“If I end up being right on housing and wrong on tariffs, and then goods inflation does come down as a result of tariffs, we're going to end up pretty substantially undershooting our target as a result of that,” said Miran. “That's a risk that I feel is really being underappreciated by people. We seem to be having a lot of people that are fighting the last war without sort of thinking about the fact that we have two-sided risk looking forward.” 

STAYING PUT FOR NOW

Miran, who was appointed to the Board of Governors in September to serve out the remainder of a 14-year term set to end this month, and is currently on leave from his role as chair of President Donald Trump’s Council of Economic Advisers, indicated he intends to stay at the central bank at least until someone is appointed to replace him, possibly beyond.

“Until somebody else is confirmed into my seat, I will continue to sit in my seat. That means what happens depends on whether somebody is nominated for my seat, and then what the timeline for that person's confirmation is, if someone is nominated for my seat,” he said. 

“Whether I'll remain on the Federal Reserve if somebody is confirmed into my current seat will depend on a variety of things, including how many seats are open, and whether the president nominates me for one of them, or wants to keep me in this seat. That's not up to me.”