Fed's Miran Warns Of Recession Risks If Rates Are Not Cut: Report

Miran stated that while he does not see a recession right now, the neutral rate of interest has been brought down because of a “variety of shocks” to the U.S. economy.

• The Fed Governor added that the unemployment rate has increased beyond what was expected, which is why policy needs to move in a dovish direction.
• Miran believes the neutral interest rate is lower now than before.
• He cited a “variety of shocks,” including changes in immigration policy, as the reason for his outlook on rates.

Federal Reserve Governor Stephen Miran reportedly warned of a rise in recession risks on Monday if the central bank does not lower policy rates further.

During an interview with Bloomberg, Miran stated that while he does not see a recession right now, the neutral interest rate has been lowered due to a “variety of shocks” affecting the U.S. economy.

“If we don’t adjust policy down, then I think we do run risks of rising recessions. I don’t think it’s too late to prevent that, and so, I think it’s important that we keep on adjusting our policy rate down,” he said in the interview.

The Fed Governor added that the unemployment rate has increased beyond what was expected, which is why policy needs to move in a dovish direction.

Multiple Shocks To US Economy

Miran thinks the neutral rate of interest, the theoretical rate at which monetary policy is neither stimulating nor restricting the economy, is lower now than before.

“My view, as I’ve described before, is a variety of shocks that have hit the economy, including the changes to the population growth rate due to changes in the border policy, have pushed what we call the neutral rate down, and that policy needs to adjust downwards to reflect that,” he said in the interview.

He added that he believes the Fed will continue to lower interest rates further, so a U.S. economic recession is not his base case right now.

The Miran Dissent

Miran dissented in each of the previous three Federal Open Market Committee (FOMC) meetings, arguing for a 50-basis-point rate cut, while the Fed cut rates by 25 basis points.

The Fed Governor stated that following the 75 bps reduction, there is now less need for a 50 bps cut at the January FOMC meeting than before.

“You sort of get into territory where you can start micromanaging instead of big cuts. And I don’t know whether we’re here yet, or it would sort of still take a couple more cuts to get there,” he said in the interview.

Meanwhile, U.S. equities gained in Monday’s opening trade. At the time of writing, the SPDR S&P 500 ETF (SPY), which tracks the S&P 500 index, was up by 0.44%, the Invesco QQQ Trust ETF (QQQ) rose 0.57%, while the SPDR Dow Jones Industrial Average ETF Trust (DIA) gained 0.22%. Retail sentiment around the S&P 500 ETF on Stocktwits was in the ‘bearish’ territory.

The iShares 7-10 Year Treasury Bond ETF (IEF) was down by 0.08% at the time of writing.

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