Fed’s Miran pivots on interest-rate cut push for December

Two members of the Federal Reserve’s policymaking panel dissented from its recent vote to lower interest rates.

For Fed Governor Stephen Miran, it just wasn’t big enough.

And he’s still advocating for a jumbo cut at the December meeting of the Federal Open Market Committee.

However, there’s a "but," he now says.

Investors cheered Fed interest rate cut

The Fed’s quarter-percentage point cut to a 3.75% to 4.00% benchmark rate in October makes short-term borrowing cheaper, potentially spurring spending and shoring up weakening job numbers. 

With grocery, rent, and utility costs still surging, many households and businesses aren’t feeling much financial relief.

A growing number of Fed officials have been warning that inflation remains “too high” and could derail progress toward the central bank’s 2% goal.

And the government shutdown means the Fed will be operating in a "data fog," missing crucial leading economic indicators and forced to rely on private surveys and other data.

Dual mandate creates a delicate balance of monetary policy

The Fed’s dual mandate from Congress requires price stability and low unemployment.

Post-shutdown data showed unemployment at a relatively stable 4.3% but with rising concerns in other aspects of the labor market.

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• Fed decision could lower stagnant mortgage rates
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Inflation is at 3%, not exactly post-pandemic craziness, but still above the Fed’s own 2% target.  

So balancing the mandate is tricky because:

• Lower interest rates decrease unemployment but increase inflation.
• Higher interest rates lower prices but increase job losses.

Miran offers stablecoin option to slash interest rates

Stablecoin issuance could lead to lower interest rates, Miran said Nov. 7.

Miran said that stablecoins are increasing demand for Treasury bills because of new congressionally mandated requirements that stablecoins be backed by liquid assets, Bloomberg reported. 

Demand for Treasurys to back stablecoins will push down yields — which move in the opposite direction of bond prices — leading to lower interest rates and, thus, lower borrowing costs in the economy, Miran said.

Miran: Further interest-rate cuts a must, but…

Miran held to his belief — and that of the White House — in a CNBC interview on Nov. 10 that the Fed should be moving at an even more rapid pace than its traditional quarter-percentage point reductions.

Why? To keep the economy out of stagflation or a recession. 

Related: ADP jobs report surprises amid data drought

He advocated, as he has at the previous two FOMC meetings, for a 50-basis-point, or half-percentage-point, reduction in December.

But for the first time since his temporary appointment to the Fed in early September, Miran said there at least should be a quarter-point easing.

“Nothing is certain. We could get data that would make me change my mind between now and then,” Miran said. 

“But failing new information that’s made me update my forecasts, looking out in time, yeah, I would think that 50 is appropriate, as I have in the past, but at a minimum 25,” he added.

With the next FOMC set for Dec. 9–10, brace for another divisive debate over whether the Fed should hold rates steady to cool inflation or continue to lower rates to shore up job numbers.

Markets are pricing in about a 67% chance of a third reduction in December, though that has been falling gradually since the October Fed meeting, according to the CME Group’s FedWatch.

Related: Inflation fight divides Fed as prices stay painfully high