Federal Reserve Board member Stephen Miran argued that the U.S. Central Bank's rate-setting process is being swayed by "virtual inflation." He said price gauges inflated beyond reality have distorted the Fed's monetary policy judgment and led it to keep rates higher than necessary. Miran is known to be close to President Trump and has recently pushed back hard against caution within the Fed, arguing that the pace of cuts should be accelerated.
According to the Financial Times (FT) on the 15th (local time), Miran stressed in a lecture at Columbia University's School of International and Public Affairs that "the Fed needs to assess fundamental inflation pressures more precisely." He explained that statistically inferred elements such as housing costs and imputed prices are creating pressures that diverge from actual supply-and-demand dynamics. Miran argued that "real prices with noise removed are not far from the target," and said that although the personal consumption expenditures (PCE) gauge came in at 2.8%, it is just above 2% once distortions are stripped out. He also offered an analysis that market-based core inflation is below 2.6% and, excluding the housing sector, falls below 2.3%.
The remarks came even as the Fed cut by 0.25 percentage point (p) for a third straight time, lowering the benchmark rate to 3.5%–3.75%, with internal debates still unsettled. At the last meeting, three Federal Open Market Committee (FOMC) members voted against the decision, and among them, Miran was the most hard-line, calling for a 50 bp cut. He warned, "Keeping policy unnecessarily tight ultimately leads to job losses."
By contrast, New York Fed President John Williams drew a hard line on the bar for additional cuts. He said, "The economy is moving into a very favorable position heading into next year," emphasizing that the Fed's cautious approach is right. Boston Fed President Susan Collins also supported the cuts themselves but said more definitive inflation trends must be confirmed for additional steps.
Miran's comments clashed head-on with the view presented by Kansas City Fed President Jeff Schmid. Schmid said that serious price concerns persist among households and corporations in the West and Midwest and argued for holding rates at last week's meeting. He assessed, "Inflation is still too high, and while the labor market has cooled, it remains balanced."
Recently, with a prolonged U.S. government shutdown delaying the release of key economic indicators, the data environment the Fed must assess has grown even more uncertain. As inflation and employment data have not been provided on schedule, internal differences have widened, increasing uncertainty about the monetary policy path. New statistics are due in the latter part of this week.
Pressure from politics is also lending weight to Miran's remarks. President Donald Trump criticized the Fed for slowing the pace of cuts too much and attacked that the size of the cuts "should have been at least double." He blasted Chair Powell as "cold-blooded" and hinted he would soon move to appoint a successor, with Powell's term set to expire in May next year. Kevin Hassett, the White House economic adviser and Chairperson of the National Economic Council, and former Fed Governor Kevin Warsh are seen as strong contenders.