Federal Reserve Governor on Disinflation, Interest Rates, and Economic Data

Impact of Government Shutdown on Economic Data

• 📌 The government shutdown is causing critical economic reports like the September jobs report, retail sales, CPI, and PCE to be unavailable, hindering the Federal Reserve's ability to set monetary policy.
• ⚠️ Policymakers are described as "flying partially blind" without a full economic instrument panel, making decisions on interest rates more challenging.

Shifting Views on the Neutral Rate and Policy Stance

• 🎯 Governor Myron believes that policy has become much more restrictive due to changes in fiscal deficits and immigration, leading to a lower neutral rate.
• 📊 He suggests that the fiscal deficit has decreased significantly, and recent population growth shocks have brought the neutral rate down, making current policy tighter than previously assessed.
• 💡 Myron's view on the neutral rate is about half a percent in real terms, which he believes is within the FOMC's range but suggests a faster path to reaching it.

Economic Strength and Policy Leeway

• 🚀 The economy's strength is partly attributed to supply-side policies like deregulation and tax changes, which increase output without necessitating tighter policy.
• 📉 Despite concerns about preserving policy space for downturns, Myron argues there is ample room to cut rates, as the Fed is far from the zero lower bound.

Inflation Outlook and Shelter Costs

• 🏠 Myron sees significant disinflation in the pipeline, particularly in shelter costs, due to the lag between market rents and recorded average rents.
• 📈 He explains that population growth, a major driver of shelter price increases, has shifted, which should lead to a decrease in shelter inflation.
• ⚠️ While acknowledging specific price increases for items like coffee and beef, Myron emphasizes focusing on the overall price level and the significant impact of shelter costs.

Response to Critics and Future Policy

• 🗣️ Myron dismisses criticism from Larry Summers, stating Summers has been consistently wrong about economic forecasts this year, including predictions of recession and job losses.
• 🧐 Regarding potential future inflation reports, Myron states that any decision to cut rates would depend on whether the inflation is perceived as persistent or transitory, and its impact on long-term forecasts and inflation expectations.