Miran cites ‘critical importance’ of Fed independence

• Key Insight: Fed Gov. Stephen Miran said central bank independence in setting monetary policy is of “critical importance,” highlighting that the central bank’s decisions should be insulated from politics.
• Expert quote: “Monetary policy should be set for the goals that Congress has assigned the Fed — for price stability and full employment — and nothing else.” — Fed Gov. Stephan Miran.
• What’s at stake: Since joining the board last month, Miran has urged his fellow central bankers to take a more aggressive approach to cutting interest rates, a goal he shares with President Trump.

Federal Reserve Governor Stephen Miran said Tuesday he believes the central bank should be free from political influence.

During a fireside chat at the Managed Funds Association, the recently-confirmed central banker said insulating monetary policy from the short-term political cycle in Washington is of “critical importance.” 

“Monetary policy should be set for the goals that Congress has assigned the Fed, for price stability and full employment and nothing else,” Miran said.

The comments are notable as Miran, who was confirmed to the Fed board in mid-September, continues to hold an appointment as the chair of the White House Council of Economic Advisers, from which he took a leave of absence while serving on the Fed board. Miran’s term as Fed Governor expires in January.

Miran brushed off a question about whether there are benefits to the Trump administration having a say in interest rate decisions, emphasizing the importance of avoiding “groupthink.”

“I think it’s critically important not to succumb to groupthink, not to live in an intellectual bubble,” he said. “I welcome all views on monetary policy, and I’m happy to hear all views about where policy should be set and why.”

In recent months, President Donald Trump launched a pressure campaign for the Federal Reserve to slash short-term interest rates, threatening to fire Fed Chair Jerome Powell over the central bank’s pensive approach to monetary policy.

Regarding interest rates, Miran reiterated Tuesday he believes monetary policy is significantly tighter than commonly assumed, which supports a change in course. In a previous speech, Miran floated that the federal funds rate should be near 2% — about half its current level.

Miran, one of the chief architects of the Trump administration’s tariff policy, warned that restrictive policy could lead to a weakened economy. 

“I’m not very pessimistic at all about the economy, but I do see some risks lurking there if we don’t adjust policy,” he said.

The Fed official stated his “sanguine” view on monetary policy is “forward-looking” and an emerging green shoot, which is giving confidence that inflation will come down, is disinflation in the housing services space. Specifically, Miran said that market rate inflation is likely to come down, as the data tracking costs lag by months if not years.

“You go to Zillow and the market rents are not necessarily the rent that people are experiencing on a day-to-day basis, because they don’t reset their leases every day,” he said. “What that means is that there’s a really long lag between when you see market rents change and when measured inflation catches up to market rents.

“I think there was a big catch-up period by which the increase in market rents happened a few years ago, and it took several years for measured rents to catch up to them,” he added.

Despite his firm stance that the Federal Reserve should continue lowering short-term interest rates, Miran said easing policy too aggressively could create distortions that would likely show up in the bond market.

“One of the things that you might expect to see is some sort of penalty from the bond market if long-end bond yields move higher as a result. I think that happened last year,” Miran said. “I think that the reaction this year has been very different from the reaction last year. I would actually argue that the bond market behavior last year bore out my argument, and this year, thus far, it is again bearing out my argument.”