One official calls for faster cuts while another favors caution
Federal Reserve governor Stephen Miran has said current inflation measurements justify faster policy rate cuts, arguing that elevated readings reflect past economic imbalances rather than present price pressures that would warrant restrictive monetary policy.
Speaking at Columbia University’s School of International and Public Affairs on Monday, Miran said underlying inflation is near the Federal Reserve’s 2% target when distortions from shelter costs and statistical artifacts are removed.
Shelter inflation reflects past conditions
Miran highlighted shelter inflation as key evidence that rates should decline faster. He said shelter costs create an “after-echo” of supply-demand imbalances from two to four years ago, not current economic conditions.
“Given monetary policy lags, we need to make policy for 2027, not 2022,” Miran said.
The governor noted that the PCE shelter index has overshot new-tenant rents after years of catching up to pandemic-era housing demand. He cited two years of very low increases in new-tenant rents, according to Cotality and Apartment List, as evidence supporting expectations for faster declines in PCE shelter inflation.
Statistical distortions criticized
Miran criticized imputed price components that he said contain no signal about economic tightness. He highlighted portfolio management services, which added about 30 basis points to core PCE over the past year despite Morningstar data showing actual industry fees fell nearly 6% in 2024.
“It would be foolish of us to chase statistical quirks rather than focus on actual consumer prices,” Miran said. “Yet here we are, keeping interest rates too high because of the phantom inflation of portfolio advisory fees.”
He added that market-based core inflation is running below 2.6%, and below 2.3% when housing is excluded.
Labor market cooling
Miran said unemployment has trended higher for more than two years while wage growth has declined. He noted that job openings, consumer surveys about job-finding difficulty, long-term layoffs, and unemployment duration have suggested loosening for several years.
“Keeping policy unnecessarily tight because of an imbalance from 2022, or because of artifacts of the statistical measurement process, will lead to job losses,” he said.
The governor advocated for a quicker pace of easing to move closer to a neutral policy stance, warning that labor market deterioration can occur quickly and prove difficult to reverse.
Williams sees policy well positioned
Meanwhile, New York Fed president John Williams, speaking at the New Jersey Bankers Association in Jersey City the same day, expressed confidence in the central bank’s current stance.
“Monetary policy is well positioned as we head into 2026,” Williams said, according to Reuters.
Williams said the recent easing has moved the Fed to a “modestly restrictive stance of monetary policy toward neutral.” He expects inflation to moderate to 2.5% next year and 2% in 2027.
On the labor market, Williams said cooling has been gradual. “The labor market is clearly cooling. I should emphasize that this has been an ongoing, gradual process, without signs of a sharp rise in layoffs or other indications of rapid deterioration,” he said.
Both officials spoke days after the Federal Reserve cut its benchmark rate by 25 basis points to 3.50%-3.75% on December 10.
