at the Federal Reserve Bank of Dallas, and I'm really excited to see all of you here with us this evening. Both those who are joining us in person and the many people who are also joining us online. This is our first global perspectives event for 2026 and one of the largest we have ever held here at the bank. So Governor Meyer, thank you for drawing such an amazing crowd. It's wonderful to have you and to see so many people. Our global perspective series was introduced in 2016 to bring our community into the bank to share our research and to hear directly from thought leaders in academia, businesses, and policy on the economy. If this is your first time with us here at the Dallas Fed or your first time getting to know us online, thank you for joining us and I hope you have the opportunity to meet with some of our leaders this evening. And I don't want to get ahead of myself, but I hope to see you again for one of our upcoming events.
Our goal at the Dallas Fed is to build a strong economy together. And to do that, we need to have a deep understanding of the economy and how everyone is experiencing it. One way we do that is through events like tonight where we hear from experts in their field on key topics related to the economy and we promote conversation through audience participation. So I hope you sent in some questions before this evening. That dialogue, that two-way communication is really important and an important part of how we serve you.
The Dallas Fed represents the 11th Federal Reserve District which consists of Texas, Northern Louisiana, and Southern New Mexico. And we are one of 12 regional banks in the nation and along with the board of governors in Washington make up the Federal Reserve system, our nation's central bank.
The 12 regional reserve banks serve as local operational arms of the Federal Reserve system, providing on the ground economic insights, supervising member banks to support their safety and their soundness and processing payments to ensure the economy functions smoothly all across regions of the United States. And the 12 Reserve Bank presidents and seven governors at the board make up the Federal Open Market Committee, which is responsible for carrying out monetary policy to pursue our dual mandate objectives of price stability and maximum employment.
Relative to other public institutions, the Federal Reserve has two aspects of its structure that are unique and crucial for how we serve you. First, we're not one centralized organization, but rather a federated system with deep local roots. This structure was intentional to allow the Federal Reserve to build deep roots across the country and to promote public trust in the Fed and in our work by bringing perspectives from all across the country into the policy conversation rather than concentrating that power in Washington DC.
And second, in our monetary policy responsibilities, the Fed operates independently while remaining accountable to the public through elected officials and our local boards of directors.
Although a large part of our work is done through a unified approach to best serve our nation, we have to set the same interest rate here in Texas as we do in Tennessee. And in bank supervision, we can't be any more or less stringent when we examine banks in San Antonio than we do when they're in Seattle. But our regional structure and its local roots ensures that reserve banks represent the public's voice, your voice in all of those national decisions. I'm really proud of our team here at the Dallas Fed and how we gather your insights. Our network of branches in Houston, San Antonio, and El Paso gives us a strong foundation to reach communities throughout our region. I regularly engage with business and community leaders across our district, many of whom are with us this evening.
Now, last month I had the chance of visiting leaders and students in Denton, Texas, and I heard how manufacturing, an early indicator of economic activity and growth, is picking up. And earlier this week, I had the opportunity to see firsthand how AI and robotic technology is developing through tours of innovation centered organizations in Austin. And I saw some amazing robots you just would not believe.
We also gather information systemically through our surveys which over a thousand business and banking executives in the region respond to ahead of every single FOMC meeting. These surveys also help us identify turning points in the economy before they're visible in the actual official data and shed light on the reasons behind these shifts. And I hope those of you who lead businesses and banks who are with us this evening are already responding to our surveys. But if you're not, I hope after this evening you go on our website and become one of our regular participants.
I regularly share those anecdotes that I hear from all of you with colleagues at the FOMC table such as how job seekers are navigating the job market and how business owners are responding to shifts in national policies with issues around immigration tariffs or deregulatory initiatives.
This is because in my view hearing multiple perspectives including your perspectives promotes better decision-making.
In my experience the Fed's data-driven approach to monetary policy and the regional representation around the FOMC table enables us to make thoughtful, objective technical decisions while keeping the public interest at the center of all we do. So I'm really excited to have one of my colleagues with us this evening to share his views. For the last several months, I've had the privilege of working alongside Federal Reserve Governor Stephen Miran on the FOMC, and it's really my pleasure to introduce him to you all tonight as our featured speaker. Governor Miran took office as a member of the board of governors in September of last year, and prior to his appointment, he served as chairman of the Council of Economic Advisers at the White House. Previously, he was a senior strategist at Hudson Bay Capital Management, a senior fellow at the Manhattan Institute for Policy Research, and served as senior adviser for economic policy at the US Department of Treasury from 2020 to 2021.
I think this event also marks his first time in the 11th district in his official capacity. And I'll say he's visiting one of the first reserve banks of the 12, and he picked the best to get started, of course. But we really thank you for being here. Moderating today's conversation is Tom Falk, retired chairman and CEO of Kimberly Clark. I'm really grateful for Tom's service to the bank. He served as a member of the Dallas Fed board of directors from 2019 through 2024 and served as chairman his final three years. Throughout his career and in his retirement, Tom and his wife Karen, who is also with us this evening, have shown continuous commitment to making North Texas a better place through their philanthropic efforts to invest in the next generation of leaders. And on a personal note, Tom co-led the presidential search that brought me here to the Dallas Fed and to Texas. And for that, I will always be grateful. So, please join me in welcoming Tom Falk and Governor Miran.
Good evening. You guys all look pretty serious out there, the crowd. You think we're going to talk about economics or something like that. So, thank you, Lori, for the wonderful introduction. As I've told others, I think the thing I'm most proud of in my service to the Dallas Fed was that I was the one who helped hire Lori and brought her to Dallas. So, thank you so much.
So, Stephen, you got a great background. You know, you've been successful in government, academia, and the private sector. And it's increasingly rare that you find individuals that work in all three of those spaces. Usually people wind up, you know, getting involved in one and they don't move around. Can you talk a little bit about those experiences and how they've shaped your views as you joined the Federal Reserve Board as a governor?
Sure. So, first of all, let me echo the gratitude to Lori for organizing this event and for that all too kind introduction. It's great to be here and it's great to see all of you guys. Thank you. I guess one interesting thing about my background relative to some traditional backgrounds for a seat like this is that I've worked for most of my career in financial markets and the corner of financial markets that I come from was macro investing. And so if you're doing a macro investment thesis you kind of have to disagree with what's priced into the market. So you sort of have to think that everyone else might not be right about something. And so it comes as no surprise that I have no problem taking a dissenting view. Part of that comes from my background in financial markets where if you don't have a disagreement, there's nothing to do. You may as well just sit on your hands. The other thing that I think comes from it is I try and be very flexible in my thought process and be willing to change my mind. Be willing to change my mind about what's driving the economy or what's driving inflation or unemployment or financial markets. Because when there's new information or the information you get rejects your earlier hypothesis, you have to be very flexible and you have to be willing to change your mind when confronted with a reality that rejects the framework you were previously using. So I try and do that a lot and I think that that career that I had before coming into government service helps me to both not be embarrassed by being out of consensus but also be willing to change my mind when confronted with new information.
Yeah, I would say on a regional bank level, that was one of the things that I found most interesting. I mean, there were a number of Fed board meetings that I came to and I was pretty sure I knew what the right thing to do was. And after listening to the economists make their presentations, hearing from my fellow board members, hearing from the president, I came away saying, you know what, I might not be 100% right. There's probably more than one way to do that. Is that essentially what you're seeing and finding at times?
Absolutely. And I think it's important to listen to a variety of views. I want to hear all views and constantly interrogate my position because if you don't do that, you become complacent.
Yeah. Well, let's dive into the economy. So, everybody I think is here. How many people care about the US economy in the crowd today? Okay. That's why you're all here, right? So, what's your outlook? We were upstairs. We were chatting for a few minutes before and you seem pretty bullish. What's your view of the US economy right now?
Sure. I guess so. When I got to the Federal Reserve in September, I had a view that there was some weaker growth in the first half of last year because of some uncertainty around the restructuring of the global trade system as well as around the potential for the biggest tax hike in history. Both of those elements got resolved last year and so I expected growth to be a bit better as things moved forward. Then towards the end of last year, we got a series of data points that indicated things were weakening and I started to get more concerned about that view on the economy going forward. And I would say the last couple of data points have actually been a little bit better and alleviated some of that concern, but not all of that concern. I still see some pockets of slack in the labor market that can be accommodated by monetary policy, but some of the concern that I had is certainly a little bit less than it was. And I think going forward, I think there's a series of supply driven changes in the economy that are going to be supporting economic growth. I see things being driven by the very powerful deregulatory agenda which I gave a speech on in January. I see things being driven by AI although I find it difficult to quantify. I can definitely start to see the effects and I see things being driven by the investment incentives from the One Big Beautiful Bill Act that I think are quite powerful and certainly evidence from the Tax Cuts and Jobs Act of 2017 was that the full expensing provisions were the most powerful parts of that in terms of incentivizing investment. So I see a series of policies that push out the supply side of the economy which I think will be underwriting economic growth in a non-inflationary way.
That's good. I think everybody here would love to hear that, right? What do you think are the biggest risks to growth if you said, you know, what could get in the way? Where are there problems that might, if we don't get it right, might trip us up?
You're looking at it. I think it's us. I've argued that I think there were a variety of circumstances... there's something in economics, in monetary policy called the neutral rate of policy which basically means you're not hitting the gas or you're not hitting the brakes. Monetary policy is neither restrictive nor expansionary. And I think that it's called R-star, right?
Yeah, it's called R-star.
I had a bet with the economist that I could get R-star into a question and they weren't sure I knew what R-star was. So I think I win the bet.
And you got it. You said R-star first, so you get the prize.
And I think there's a variety of factors that have pushed that around more quickly, I think, than consensus has given credit for. And some of those factors are things like the very high population growth that we had in previous years, followed by now very low population growth. Some of those things are changes in net national borrowing driven by swings in fiscal deficits and declining deficits that I'm a little bit optimistic about in the future. And I think what that has done has led monetary policy to passively tighten in the last year as neutral rates came down. If policy rates don't come down by the same amount, then they become passively tighter. There's another element that worries me which is that I think folks may be thinking about the stance of monetary policy in a little bit of a wrong way or a way that I don't agree with because typically you think about the stance of monetary policy as being related to the real interest rate. The real interest rate determines investment decisions because if prices are going up because of inflation you don't get the return on that. You get the real rate of return on investments and so that's why you look at real rates ex-inflation to evaluate the stance of monetary policy. But of course the inflation rate that you choose matters and if you're measuring a rate of inflation that doesn't have anything to do with returns, you are looking at a real interest rate that's not a real interest rate of return. And so for example, if we are mismeasuring inflation because we are misconstruing portfolio management fees, which is something that I've dwelt on, that index in the PCE inflation index basically just tracks the stock market and conflates a quantity with a price. I think a lot of people in this room probably know that fees have been in trend deflation for two decades instead of extraordinary inflation. That series has contributed 36 basis points to core PCE in the last year versus historic norms of six. So that's a bias in inflation that is not a return that anybody gets. So if you subtract that inflation rate off of the nominal interest rate, you're not looking at a real rate of return that anybody gets. And so I think that some people think that policy is less accommodative than it is, that they don't realize just how restrictive it is. Similarly, if you think that tariffs are driving inflation and this isn't my view, but it's the view of a lot of my colleagues. If you think that tariffs are driving inflation, that's not income that anybody gets because the government gets it. And so if you have tariffs built into your inflation outlook and you subtract that measure of inflation off of the nominal interest rate, you're looking at a real interest rate that is biased by using the wrong inflation measure. Nobody is getting that real rate of return. And so monetary policy is not as accommodative as you think it is. So the biggest risk I think to the economy is that we're misconstruing just how tight monetary policy is.
Yeah. Speaking with PCE, by the way, everybody know what PCE is in the audience? It's a measure of inflation that the Fed uses. We hear CPI a lot in the popular press, but PCE is really what you guys use as a more reliable indicator. Is that fair?
Well, it's what the Federal Reserve has chosen to target.
And one of the audience submitted questions asked about owner equivalent rent and the weighting of that, is that overstating inflation. So in that measure they don't know what it costs if you own your house. So they put in a factor called owner equivalent rent and it's a calculation and it's inherently not accurate but do you have a view on that or perspective?
Yeah, I do. Look, the problem with inflation is that it's a sausage that has to get made. And I can tell you the price of a pound of coffee or a barrel of oil or an AI GPU. But inflation is the change in the general price level. And the general price level is an abstraction. It's not concrete. It doesn't exist. It's got to be constructed by government statisticians who have a very, very challenging task in front of them. And there's a thousand methodological choices they have to make with no clear right answer. And so as such it's very difficult to conceptualize exactly what inflation means. How you incorporate housing is a very complicated question. So complicated for instance that if you look at the way the European Union calculates their inflation measures, they don't include owner equivalent rent at all because they couldn't agree on how to calculate it. That's how contentious these issues are.
So, what owner equivalent rent does is it basically says if you own a home and you rented out your home, you'd be able to get some income for that. And so, by occupying your home, you're essentially consuming that amount. And so, we're going to count the housing consumption that you do by imagining that you're consuming the rental income you theoretically could get for your home. Of course, there's no really perfect way of doing that. We do our best. I think the Bureau of Labor Statistics does its best. I think they do a good job all things considered but there's still some issues and one of the issues with housing is not in my mind is not actually OER. I think OER generally is a good thing to do. It's the fact that housing inflation is really, really backward looking. And so the way that the government statistics agencies measure housing inflation is to look at rents which then feed into rents people pay as well as owner equivalent rent that we just discussed. But they look at rents for all people. And that makes sense because you would care about consumption of all people and prices faced by all people as opposed to just rents on new leases, right? And the reason this matters is most people don't renew their lease every day. They renew their lease once a year, once every two years. And so as a result, if you don't renew your lease for a year, whatever the rents in the market right now, you look at Zillow or something, that's not the rent that you pay. You don't actually experience the rent increase until you renew your lease in a month, six months, a year, whatever it is. So, for that reason, because there's a lag in when the lease is reset, the way that we measure shelter inflation lags by a significant amount what you see in market rents on Zillow or anywhere else you're looking at market rents. Now, it's a little bit more complicated than that, but the bottom line of what's going on and the way that we measure shelter inflation is that it reflects, because of these really substantial lags that are built in in the current circumstance, it reflects the housing market of three or four years ago. It doesn't reflect the housing market of today. And shelter inflation is printing materially above where it was before the pandemic because of this lagged issue because it reflects the housing market of three years ago. Meanwhile, market rents have been running very low around 1% for a couple years now. And so, there's various statistical reasons that I went into in a speech in December on the inflation outlook to expect measured inflation rents to converge down to market rents I think pretty reasonably quickly over the course of the next year. So, I do think that there are some biases built in from this. I'm optimistic that they will start to normalize over the last year. But this is just another way in which I think that the inflation data are somewhat different than inflation as would be indicated by supply demand balances in the real world.
This kind of leads into the next question. At the most recent FOMC meeting in January, you preferred to lower the rate by a quarter point. The decision was to keep rates where they were at. You've dissented other times and others on the FOMC dissent from time to time. Can you comment on what led you to that recommendation and what data would you need to see to come up with a different view or what data are you looking at that drives your view?
Sure. So there's two elements to that. Well actually I guess there's three elements to that. The first one is inflation. As I was just saying I view the measured inflation data that we're getting as distorted by a couple of anomalous factors right now. There's always biases in the way that you measure inflation. The problem is if those biases change over time. If the biases change over time, you're implicitly adjusting your inflation target. And the two biases that I just mentioned, shelter and portfolio management fees, are contributing much more to inflation than they historically would have. Those biases are bigger than they used to be. And therefore, my view is that underlying inflation looking through those biases is actually very close to our target. If you don't look through those biases, you are implicitly moving your inflation target down. So that's one reason. Another reason is the labor market. In the at the end of last year there were some signs of stress in the labor market. The last couple of prints have been a little bit better than we got at the end of last year. But nevertheless there are some remaining signs of slack in the labor market that are of interest to me of the type that I think monetary policy could accommodate. And these are types of folks who are working part-time for economic reasons, longer periods of time spent unemployed, some folks who are marginally attached to the labor force. I think there's some space for monetary policy to help create jobs for those people and pull people into the labor force. And then lastly is the question of what economists call the output gap. And so, as you're aware, economists have supply and demand. And if supply increases by more than demand, you have what we call an output gap. That's slack in the economy, unused resources that could be put to use by some monetary stimulus. And as we started off discussing before, I view the supply side of the economy as having been pushed out by a variety of factors like AI, like deregulation, like capital deepening. And these are factors that create slack in the economy. And it doesn't matter whether that slack emerges because demand goes down while supply stays here, that's a recession, right? Or demand stays here and supply moves up. And that's what I'm talking about with the productivity shocks, right? It's still slack in the economy, increased potential output that can be accommodated by looser monetary policy. And so the combination of these things leads me to think that monetary policy is tighter than it needs to be and that we can afford to have lower interest rates.
So if you saw weaker job market that might change your view or hotter inflation data that might change your view or what are you thinking about there?
Yeah. So what would change my view? My view is predicated on the fact that I don't think that we have an inflation problem. I think that we had a big run up in prices and prices are now roughly stable at a higher level than they used to be. Right? So there's a difference between affordability and inflation. But right now I see prices as roughly stable unlike say four or five years ago when they were not stable. So I view price stability as having been restored albeit at a higher level that people are understandably unhappy with. Now, a lot of my view is based on the housing market is based on the fact that market rents have been growing at a 1% rate for two years. That renewal leases have caught up in level terms to new leases, which means that there's now a cap on how much a landlord can charge when you renew your lease. If the outside option, if you were going to move homes and the new lease in a different home is up here, your landlord can increase your lease a lot. It's a lot of inflation. Right? If the renewal lease is caught up to the outside market to what you would pay if you moved homes, the landlord can't really increase your lease as much. He's capped by what you would pay if you moved outside, right? The fact that the renewal leases have now caught up to the new leases means that there's going to be a lot of deceleration in the rate of increase of renewal leases. Right? So, a lot of my inflation view is built on the housing market. What would make me think my inflation view was wrong? It would be seeing stories about how rents are going to accelerate, about how rents are picking up, right? You do start to see some signs of the rental market stopping going down, right?
But we haven't yet seen signs of rents really picking up. And because rents have been growing at such a low rate for two years now, it makes me very optimistic about the convergence of measured shelter inflation down to where the market has been for two years.
Maybe talk a little bit about the dissent process. I think the group might find that interesting. I was chairman of Kimberly Clark for many, many years. When we had a board meeting, usually we talked until I got everybody to vote yes. So, you know, like I knew they all wanted to eat lunch and go home. So, most boards are unanimous and in the Dallas Fed, we had several meetings where there was not agreement. We would have a vote before our president goes to an FOMC meeting and we'd have a spirited debate and not everybody agreed and that was okay. And it's sort of a unique thing, I think. And maybe you can comment about the dissent process. I mean, when you dissent, does nobody talk to you at break or how does that all work?
