Fed Governor Stephen Miran on Interest Rates, Inflation, and Economic Outlook

Impact of Government Shutdown on Economy

• 🏛️ A government shutdown is seen as temporarily depressing GDP growth in the current quarter.
• 📈 The economic growth lost during a shutdown is expected to rebound in the subsequent quarter once the government reopens.
• ⚠️ While typically temporary, an extremely long shutdown might result in some growth not being recovered.

Economic Data and Inflation Outlook

• 📊 Despite the lack of official data due to the shutdown, alternative and private sector data are being monitored.
• 📉 Inflation data, particularly imputed prices like owner's equivalent rent, are considered backward-looking and potentially misleading.
• 🎯 Market-based measures of PCE, especially excluding shelter, are running closer to the Fed's 2% target.
• 🔮 Policy should be forward-looking, based on forecasts rather than stale data.

Monetary Policy Stance and Rate Cuts

• ✂️ Governor Miran believes a 50 basis point rate cut would be appropriate for December, with a minimum of 25 basis points.
• ⚠️ He notes that his colleagues may not share this dovish view, citing Fed Chair Powell's guidance and other comments.
• 💼 Financial conditions are viewed as nuanced, with some areas appearing tight (e.g., housing) despite loose areas (e.g., some equity markets).

Economic Growth and Output Gap

• 🚀 Factors like tax refunds and depreciation are expected to contribute to economic performance in the next year.
• ⚖️ Monetary policy should consider the output gap (the difference between potential and actual GDP).
• 📉 Policies like tax cuts and deregulation may increase the output gap, suggesting a greater need for rate cuts.

Addressing Inflation Concerns

• 🚫 Concerns about tariffs causing inflation are noted, but these are seen as one-off, fiscally driven price increases that the central bank should look through.
• ⚠️ Such price changes are not indicative of underlying shifts in supply and demand that would lead to persistent inflation.