Stephen Miran, one of the newest members of the Federal Reserve’s Board of Governors, said on Monday that the central bank’s policy stance is far too restrictive, pressing his colleagues to recognize the risk of needlessly slowing the economy at a time when inflation is already coming down.
Speaking at the Economic Club of New York, Miran argued that the Fed’s benchmark rate should be closer to two to 2.5 percent, roughly two points below its current level. He said that recent changes in immigration, fiscal policy, and trade have altered the underlying balance of saving and investment in ways that most models fail to capture. The result, he warned, is that officials are underestimating how tight policy really is.
“I view policy as very restrictive, believe it poses material risks to the Fed’s employment mandate,” he said, adding that keeping borrowing costs so high “risks unnecessary layoffs and higher unemployment.”
A central plank of Miran’s argument is demographics. For much of the past decade, the U.S. population grew at about 1 percent annually, fueled in part by immigration. But that trend has shifted abruptly this year. With tighter border enforcement and more migrants leaving the country, population growth may slow to less than half its previous pace.
Fewer workers entering the labor force, Miran argued, means the economy’s potential output is likely to be lower than it would have been had the Biden open-borders immigration flood continued. That shift alters the balance of saving and investment, which in turn pushes the “neutral” interest rate — the level that neither speeds up nor slows growth — lower. If the Fed keeps policy calibrated to yesterday’s growth path, he said, it risks putting far too much weight on the brakes.
At the same time, Miran noted, other policies may be pushing in the opposite direction. He said the tax law both lifts national saving, which lowers the neutral rate, and spurs business investment, which pushes the neutral rate up. It also temporarily boosts demand, which could raise the appropriate policy rate by pushing the economy closer to its potential output. Deregulatory and energy policies, by lowering barriers and improving productivity, may also increase the economy’s capacity to grow, nudging the neutral rate up—but only modestly. Miran described these forces as meaningful but not strong enough to outweigh the demographic and trade- and deficit-related shifts that are dragging the neutral rate down.
By his math, the neutral rate may be close to zero, which means today’s federal funds rate is imposing far more of a drag than intended. “Based on this analysis, I believe the appropriate fed funds rate is in the mid-2 percent area,” he said.
The remarks underscore the growing debate inside the central bank as officials weigh whether to keep their focus on stubborn inflation or shift attention to signs of labor market weakness. At their meeting last week, policymakers left rates unchanged but revealed sharp divisions over the path ahead.
Miran, a Trump appointee who was confirmed to his position as governor last week and is on leave as director of the White House economics advisory board, has staked out a position closer to the dovish end of that spectrum. In addition to the demographic shift, he pointed to falling rental inflation — which has yet to show up in official data — and higher national saving from tariffs and tax changes as other forces pulling down the neutral rate.
His analysis reflects a broader question looming over the Fed: whether the extraordinary policy shifts of recent years — from sweeping trade renegotiations to fiscal retrenchment — are remaking the contours of the U.S. economy in ways that call for a new monetary framework.
Not all Fed officials share his sense of urgency. Alberto Musalem, president of the Federal Reserve Bank of St. Louis, said in a separate appearance Monday that he supported the most recent quarter-point rate cut “as a precautionary move” but stressed that policy is already “between modestly restrictive and neutral.” Further reductions, he said, should be considered only if the labor market deteriorates, warning there is “limited room for easing further without policy becoming overly accommodative.”
Raphael Bostic, president of the Atlanta Fed, struck a similar note of caution in an interview with the Wall Street Journal. He said he had penciled in just one rate cut for all of 2025, reflecting greater worry about inflation’s persistence. “I am concerned about the inflation that has been too high for a long time,” he told the paper, adding that he would not favor another move at the Fed’s October meeting “but we’ll see what happens.” Bostic projected that core inflation would still be running at 3.1 percent by the end of the year, with unemployment edging up only gradually.
Taken together, the comments highlight the crosscurrents facing the central bank: Miran urging faster action to prevent rising unemployment, while regional presidents like Musalem and Bostic emphasize the risk of inflation staying above target. The divergence reflects not just a clash of economic models, but a deeper debate about how the Trump administration’s policies on immigration, trade, taxes, and regulation are reshaping the U.S. economy.
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