- AI investment could lead to a higher neutral rate
- Recent policy changes, including immigratio, have produced fast changes in the neutral rate
- Current Fed policy is more restrictive than people think because the neutral rate has fallen
- Difference with policy views of collegues is more based on speed of cuts than destination
- He has a more sanguine view of inflation, mostly due to expectations about housing costs
- Puts less weight on changing policy gradually
- If data comes in hotter than expected, would have to reevaluate
- If housing in particular does not show falling inflation, he would have to question outlook
- Feels confident that shocks like immigration are large enough to influence policy.
- Does not feel that moving by more than a 50 basis point cut is necessary.
- No evidence that tariffs are raising inflation, arguments otherwise are based on prior trends.
- Key categories of imported goods are not seeing price increases that are different from other goods
- Goods inflation rates in the US are comparable to those in other countries.
- Renewed US-China tensions are a serious issue
- Renewal of US -China tensions reduces uncertainty over trade that had been easing.
- The threats may not be realized for weeks, but if they are enacted there is a risk of material economic downside.
- The risks to the outlook have changed versus a week ago
- Fed should stay out of climate change and highly charged racial policies
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The Fed should call balls and strikes evenly; some colleagues are very eager to discuss tariffs and inflation but not for other policies.
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Colleagues, for example, don’t seem to discuss the impact of deficits or climate policy on inflation.
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Singling out one set of policies like tariffs can make people feel that the Fed is opposed to them.
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Important that the Fed struggle to be seen as nonpolitical.
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The recent drop in long yields is a sign the market is saying the Fed was right to cut rates
Earlier today, Fed’s Miran emphasized the uncertainty surrounding the neutral rate, noting that it remains difficult to pinpoint precisely and that this ambiguity complicates policy decisions. He said that while the neutral rate’s exact level is unclear, the ongoing debate about how it has evolved is both valid and necessary. Miran underscored that the economy has become more vulnerable to shocks as monetary policy remains restrictive, and that the key difference in his perspective from other FOMC members lies in how quickly the Fed should move back to a more neutral stance.
This article was written by Greg Michalowski at investinglive.com.