Fed Governor Stephen Miran on Kevin Warsh, Monetary Policy, and Inflation

Transition at the Federal Reserve

• 📌 Governor Stephen Miran's term is expiring, but he will remain at the Fed until his replacement is confirmed, likely Chairman designate Kevin Warsh.
• ⏳ The exact duration of Miran's extended term is unknown, as the confirmation process for Warsh is unpredictable.

Monetary Policy Stance and Dissent

• 📉 Miran continues to advocate for lower interest rates, dissenting from the Fed's decision to hold rates steady.
• 💡 While he previously favored 50 basis point cuts, he now supports a slower pace of 25 basis points per meeting due to progress made and slightly better labor market data.
• ⚠️ Despite some stabilization, Miran still has concerns about the labor market's gradual cooling trend over two years.

Inflation Measurement and Policy

• 📊 Miran argues that current inflation overages are largely due to measurement quirks, specifically portfolio management services and backward-looking housing data.
• 🎯 He believes that after adjusting for these factors, market-based core inflation ex-housing is within acceptable ranges, negating the need for restrictive monetary policy.
• 🚫 Policy should not be based on inflation measurement errors or cause people to lose jobs.

Economic Segmentation and Policy Focus

• 🧐 Miran acknowledges discussions about K-shaped economies and firm-level segmentation, including concerns about small and middle-market businesses.
• ⚖️ However, his focus remains on the overall macro economy, aggregate employment, and aggregate inflation as mandated by Congress.
• 🔍 Analyzing segments can be valuable for predicting overall trends, such as weakness in smaller business segments portending broader economic shifts.

Views on Kevin Warsh and Fed Leadership

• ⭐ Miran praises Kevin Warsh as a fantastic pick with a long, insightful career in monetary policy, possessing enormous credibility and respect.
• 🤝 He is confident that Warsh, having prior experience at the Fed, can build consensus among key figures and persuade others of his policy views.
• 🗣️ Miran emphasizes that the Fed chair's role involves building consensus, and Warsh's experience and respect will be crucial.

Personal Experience and Policy Independence

• 🚫 Miran states that President Trump has never asked him to take specific actions on monetary policy, only sharing his publicly known views.
• 📊 He believes fighting the perception of political influence is achieved by taking policy actions consistent with economic data.
• 🎯 The appropriateness of policy for the economy, not the motives behind it, is what ultimately matters to financial markets and the economy.

Balance Sheet Policy and Financial Conditions

• 🏦 Miran supports shrinking the Fed's balance sheet but believes regulatory reform is necessary to manage reserve demand in banks.
• ↔️ The impact of balance sheet reduction on long-term rates depends on the method (e.g., roll-off vs. selling securities) and the overall stance of policy.
• 🧰 As long as the Fed is not at the zero lower bound, it has multiple tools, including short-term rates, to offset balance sheet policy effects and manage financial conditions to achieve its targets.

Appreciation for Jay Powell

• 👏 Miran expresses gratitude to Chairman Jay Powell for his critical efforts during the pandemic recession, which he believes helped save the country from a second Great Depression.