Governor, Federal Reserve Board of Governors
Fed has excess focus on backward-looking data, says former Fed Governor Stephen Miran
Stephen Miran, former Fed governor and Hudson Bay Capital, joins 'Squawk on the Street' to discuss if there's an argument to be cutting rates, where inflation will be next year and much more.
About Stephen Miran
Stephen Miran, a former Federal Reserve governor who served an eight-month tenure and dissented in favor of a rate cut at all six meetings he attended, has commented on the central bank's policy approach. In a June 2026 interview, Miran argued that the Fed has an "excess focus on some backward looking data" and suggested that policymakers should instead base decisions on where inflation is expected to be 12 to 18 months out, citing the lag in monetary policy's effect on the economy. He stated that as long as inflation expectations beyond one year remain stable, Fed credibility is not an issue, but said credibility becomes a concern if those expectations begin to move. In a May 2026 interview, Miran discussed his experience at the Fed, saying he was received internally "very politely" and "very cordially." He advocated for a smaller Fed balance sheet, arguing that a large one "implicates independence to an extent" and creates "murky" questions about the delineation between monetary and fiscal authority. Miran also noted that immigration has both hawkish and dovish implications for policy, lowering the breakeven payroll growth rate while also reducing the neutral rate of interest and being disinflationary through long-lived capital and consumer goods. He acknowledged disagreements with others on policy and said there had been signals from the White House regarding desired policy rates.
Transcript (16 segments)
✨ AI-enhanced transcript with speaker attribution
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Narrator0:00
By many to be the most dovish on the board. He was the most dovish on the board during his eight-month tenure, casting a dissenting vote in favor of a rate cut at all six meetings he attended. Now he's a senior strategist at Hudson Bay Capital, and here with us at Post Nine. In a CNBC exclusive is the former Fed Governor, Stephen Miran. Welcome back.
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Stephen Miran0:17
Hey, thanks for having me back. It's good to see you.
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Interviewer0:20
You're a free man here so you can really open up. We were just talking about the policy path. Do you think that there is still an argument to be cutting rates right now?
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Stephen Miran0:29
Look, at the end of the day, the critical issue is that monetary policy has lags. It doesn't hit the economy for 12 to 18 months. If you change interest rates today, it doesn't do anything for the next few months. It takes a year plus to filter into the economy. So what that means is you need to make policy based on where you expect things to be a year to a year and a half from now, right? So has measured inflation been high recently? Yes. Has the Iran conflict put upward pressure on energy prices and other elements of the inflation index? Absolutely. Is there a reason for those things to be expecting inflation to be running high next year, June to December of next year, not June to December of this year, not January to June of this year? Right. That's the critical thing. If all you had to do was make policy based on backward-looking data, a machine could do it. You wouldn't need people.
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Interviewer1:15
Sure, but it's impossible to know where inflation is going to be in the next year because of things like geopolitical events, but also because there's a debate about how AI is going to change the economy. I mean, that's why the Fed is usually data dependent.
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Stephen Miran1:26
Well, so you make forecasts, and sometimes those forecasts have things with high degrees of confidence to them, like housing markets and labor markets. The pass-through of those into inflation tends to be things that economists can get a good grapple on. Supply shocks feeding into inflation, whether positive supply shocks like AI or negative supply shocks like energy prices. If you've got a good forecast for that, you can build it into your overall forecast for inflation. But if you don't have a forecast for more negative supply shocks hitting the economy in the second half of next year, I don't know why you'd be forecasting above-target inflation, materially above-target inflation.
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Interviewer1:58
So you would be voting for a cut again here this week.
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Stephen Miran2:00
As I said, I think that monetary policy lags are really important and you have to take them into account. And I don't see a reason for thinking why inflation would be running very high in the second half of 2027, not the second half of 2026.
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Interviewer2:12
Having said that, do you think any of your former colleagues will actually be voting for a cut?
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Stephen Miran2:17
No, I think that a lot of them are focused on what the data have been doing recently. Right. Sort of. To me, that can be a little bit backward-looking, that can sort of just be mechanical responses to what the data have printed in the last few months. For me, it's really important to look at what's driving inflation. What parts of the index have been elevated? Are those indicative of the underlying supply-demand balances that are the type that monetary policy can address? And do you expect those to persist in a way that's going to raise inflation 12 to 18 months out? I think a mechanical response to what the latest measured data have been can be a little bit backward-looking. And I think I've seen some of that.
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Interviewer2:50
So you think that the current Fed lineup is too focused on the current inflation numbers.
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Stephen Miran2:55
I think that there's maybe an excess focus on some backward-looking data and not enough focus on asking the questions: Why is inflation going to be elevated in June, July, September, December of 2027? Not right now.
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Interviewer3:09
And the things that you think are driving disinflation right now would be shelter, wages, portfolio insurance, which I know you bring up every time.
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Stephen Miran3:20
So shelter and wages. Absolutely. Market rents for housing, a weighted average for market rents in this country, has been growing at about 1% for almost three years now. Right. So as every month that goes on, a little bit more of that very, very low shelter inflation is going to bleed into the measured inflation indices. The labor market is also another source of persistent inflation or disinflationary pressures. What's unique about housing and shelter? Sorry. What's unique about housing and the labor market is that they tend to have a very long-lived effect on inflation, right? Those tend to be very persistent sources of inflation or disinflation, and therefore allow you to do some forecasts into the future in a way that a transient supply shock, like oil prices, doesn't give you a very clear read into where things are going to be 12 to 18 months from now, right? Like it's much harder, I think, to forecast, to extrapolate from current energy prices where energy inflation is going to be 12 to 18 months from now, than it is to sort of say, make a statement about the labor market or the housing market for the reasons about that I described, and also how the statistics are constructed.
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Interviewer4:19
But isn't there a credibility factor too? I mean, you want the Fed to be cutting rates as the inflation numbers are moving farther away from the Fed's own forecasts and target. Doesn't that raise some real questions about how serious the Fed is about its inflation target?
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Stephen Miran4:38
So credibility and inflation expectations are very, very deeply connected. And I think that inflation expectations are super important. And I think a lot of people at the Fed do as well. And if you saw inflation expectations start to move, that's absolutely something that you would respond to. Inflation expectations moving in a meaningful way, longer-term expectations beyond the one-year horizon, would be something that would make you think, hey, you got to worry about your credibility. But as long as inflation expectations beyond the one-year horizon remain relatively stable, I don't think credibility is an issue. You start to worry about credibility when inflation expectations start to move, because then the market starts to think, hey, you're not going to achieve your inflation target further out. And if you look at inflation expectations...