Fed's Stephen Miran Talks Cutting Rates, Iran | Bloomberg Talks

Good morning. Thanks for having me.

Well, at the moment, I think it's too early to sort of have any firm views as a result of that. Oil's gone up a bit. But the major question is does oil stay up or does it come back down? And that of course will depend on how things play out. But even that said, even if oil stays at these types of levels, to me, it's difficult to get a lot of read through as a result of that. Sure, oil will feed into headline inflation, but the evidence that it feeds into core inflation in any sort of material way unless there's a huge move in oil prices, I think it's quite limited. So, it's difficult for me to get very excited about a policy implication of what's happened thus far.

I think it is. I think that attitude is a little bit of fighting the last war and I think that the Federal Reserve for decades has had the view that headline inflation shocks like oil are best looked through and you sort of focus on core inflation because it's indicative of where inflation is going to go in the future and you focus on the labor market and that type of reasoning leads you to look through an oil shock. Now, of course, what happened in 2022 was a bit different because the other policy settings were different, right? Don't forget monetary policy was as expansionary as it had ever been at the time. Fiscal policy was injecting trillions of dollars into an economy that was recovering thanks to vaccines and medical improvements and passing on its own. And so the policy environment was very different. And so it was very easy for a slightly inflationary shock to feed through into the broader economy and create this type of persistent inflationary problem that the Fed dealt with. We don't have that right now. We don't have fiscal policy that's slamming on demand. In fact, if anything, supply is moving out quite aggressively and monetary policy is still modestly restrictive in my view. So the policy settings, the economic environment is different. To focus on that, as you described a moment ago, to me is fighting the last war. That was a unique circumstance.

So, look, for me, we've got two years of a trend, two plus years of a trend of gradually weakening labor markets that sort of set in 2023. It's way too early to reject the notion that that trend continues based on one or two labor market reports. And when you look at the totality of labor market data, there's still evidence to me that it needs more support from monetary policy. When I look at things like employment levels of young folks and folks without college degrees, when I look at people who are unemployed for long periods of time, long-term unemployment, to me, that's indicative of there still being slack in the labor market that monetary policy can accommodate. So, I think it's too early to reject the notion that a two plus year trend is over on the back of one print.

Yeah. So if you saw evidence in inflation markets that markets were concerned about long-run inflation expectations, that's the type of thing that would give me pause. But I don't see evidence of that so far. Short-run inflation expectations have come up quite a bit and when you look at CPI swaps, but that's just because the mechanical read-through of oil prices into headline inflation. When you look at longer tenors, there hasn't been much of a move. And so as a result, I don't get the impression the market is concerned about long-run inflation expectations.

Yeah, I think we're probably about a point above neutral now. And so my view is that we ought to start by getting back towards neutral.

Yeah, pretty much.

So I would want to start thinking about inflation coming in below the target which is a risk that I've highlighted. If I end up being... I've emphasized that risk.

Sure. I've emphasized housing markets a lot that I'm expecting a faster convergence down of renewal rents to new rents which will lead housing inflation to converge quickly to new rent levels. And there's reasons for that that I've talked about at length. I don't need to repeat them here unless you want me to. But if I end up being right about housing and wrong about tariffs, and so I've also argued that I don't view tariffs as driving goods inflation, you know, I don't view that because imported good prices are not inflating faster than all good prices, which is what you would expect to see. And given that backdrop, I don't view tariffs as driving goods prices. So if I end up being right about housing and we get a sharp deceleration in housing this year because of quirks of how housing is measured and because of dynamics of renewal rents versus new rents and I end up being wrong about goods prices and goods inflation comes down quickly over the course of this year then we're going to undershoot our target.

No, I'm not saying we need to get ahead of that. That would get me to argue we go... that's the conversation we're having about how preemptive you might need to be in a moment like this when others on the committee are thinking let's wait and see, wait and see what happens.

No, I think it's a moment to continue acting. We have policy, I have projections for unemployment, I have projections for labor markets, so do my colleagues and I believe it's appropriate to continue acting in accordance with those projections until you get evidence that you have to change your projections. And thus far, the evidence from events over the weekend haven't led me to change any of my forecasts for the labor market for inflation over the medium term. So, it's too early to respond to them.