Miran: Policy Is "Considerably Restrictive" and Could Slow Down Economic Growth

I'd like to thank the Economic Club of New York for the invitation to speak today.1 This is my first time speaking in my new capacity as a member of the Federal Reserve Board. As such, I would like to be transparent on my thinking. Subsequent to last week's meeting of the Federal Open Market Committee (FOMC), it should be clear that my view of appropriate monetary policy diverges from those of other FOMC members; I view policy as very restrictive, believe it poses material risks to the Fed's employment mandate, and would like to explain why. There's no perfect means for determining appropriate monetary policy at any given time. That said, rules of a Taylor type are a useful way to gauge where the federal funds rate should be set based on the prevailing macroeconomic conditions and outlook. Let me first say that I find these types of policy rules to be useful as indications, but I am not slavishly devoted to them. The Taylor rule suggests policymakers ought to think about three key variables in determining the appropriate fed funds rate: inflation, the neutral rate of interest, and the output gap. As one might expect, changes in inflation and employment—one way of framing the output gap—receive due attention from Fed officials. However, changes in the neutral rate, or the policy rate that would be neither expansionary nor contractionary when the economy is at full employment, are often underappreciated. Some argue that leaving the neutral rate, which I will refer to as r*, out of the conversation makes sense because it is unobservable and therefore highly uncertain. But so are potential growth and the natural rate of unemployment, yet they are frequently updated and discussed. Because many r* estimates are based on empirical models requiring a great deal of time-series data, they can be backward-looking and slow to adjust. Moving too slowly to update a rapidly changing neutral rate raises the risk of policy mistakes. R* reflects the balance of saving and investment in an economy and it evolves over time with demographics, productivity, fiscal policy, and other factors. It is my view that previously high immigration rates and large fiscally driven decreases in net national saving, both of which raise neutral rates, were insufficiently accounted for in previous estimates of neutral rates. Monetary policy was not *MIRAN: APPROPRIATE FED FUNDS RATE IS ROUGHLY 2% TO 2.5% *MIRAN: MULTIPLE TRUMP POLICIES ARE LOWERING NEUTRAL RATE *FED’S MIRAN SAYS CURRENT INTEREST RATES ’VERY RESTRICTIVE’

FED'S BOSTIC SEES LITTLE REASON TO CUT RATES FURTHER FOR NOW -- WSJ *BOSTIC PENCILS IN ONLY ONE RATE CUT FOR 2025: WSJ BOSTIC DOESN'T BELIEVE LABOR MARKET IS IN CRISIS RIGHT NOW - WSJ Fed's Bostic: The current moment is one of the most difficult periods for policymakers because both risks are rising - WSJ FED'S BOSTIC SAYS HE DOESN’T PROJECT INFLATION RETURNING TO THE FED’S 2% GOAL UNTIL 2028 - WSJ

St. Louis Fed President Alberto Musalem shared his views on the U.S. economy and monetary policy at a Brookings Institution event in Washington, D.C. He gave a speech, “Remarks on the Economic Outlook, the Balance of Risks and Monetary Policy,” and participated in a moderated Q&A. Key Takeaways from President Musalem’s Remarks: • Given the economic outlook and balance of risks, I supported the 25-basis-point reduction in the FOMC’s policy rate last week as a precautionary move intended to support the labor market at full employment and against further weakening. • Recent data indicate the downside risks to employment have increased relative to the risk of inflation remaining persistently above target. Fed's Musalem: Loose financial conditions, other factors mean the Fed should move cautiously on further cuts. Fed's Musalem: Economy near full employment, recent cut to help maintain it Fed's Musalem: Monetary policy must continue to lean against inflation that remains above target. Fed's Musalem: Overemphasis on labor market could lead to policy that is too loose and do more harm than good.