Federal Reserve Governor Stephen Miran said on Monday he remains committed to the view that interest rates can be cut by roughly 100 basis points over the course of the year to help cool the labor market, despite renewed market speculation about possible rate increases after the outbreak of conflict in Iran.
Speaking on CNBC, Miran acknowledged that geopolitical events tend to elevate market volatility but cautioned against over-interpreting such moves. "If there's a time when markets are going to be volatile, it's in the middle of a war...I'm disinclined to read too much into that," he said, adding that so far higher oil prices have not translated into rising inflation expectations or a wage-price spiral.
Miran reiterated several key assessments about inflation and the labor market. He said there is no evidence of a wage-price spiral and that inflation expectations have not yet been affected by the uptick in oil prices. He also said he does not see signs of an oil-driven inflation shock, nor any indication that his Federal Reserve colleagues are shifting their policy positions in response to oil.
That assessment sits alongside Miran's ongoing concern about the labor market. He said wage growth has been moderating and that monetary policy should act to restrain labor demand that remains too strong. On that basis, Miran said the Fed could be "about a point easier over the course of the year," and he expects inflation to be on track to return to target a year from now.
Beyond the policy rate outlook, Miran flagged the size of the Federal Reserve's balance sheet as an issue. He described the balance sheet as too large and said he would like to see it shrink. At the same time, he argued the Fed can use reductions in short-term interest rates to offset the tightening effect that balance-sheet runoff can create, and he emphasized the importance of moving slowly when reducing the balance sheet.
Miran warned that financial conditions have tightened in an unwanted way, a development that could damp economic growth. He also noted that higher oil prices might help accelerate a cooling in the labor market, while stressing that monetary policy overall remains restrictive.
On his personal plans, Miran said he intends to remain at the Fed until Kevin Warsh, President Donald Trump's nominee to replace Jerome Powell as Chair of the Federal Reserve, is confirmed - an outcome he said he expects - and that he likely will participate in at least one more Fed meeting before leaving.
In its most recent policy decision, the Federal Open Market Committee voted on March 18 to keep the benchmark federal funds rate unchanged. The committee's vote was 11-1 to maintain the target range for the federal funds rate at 3.5% to 3.75%.
Contextual note: The comments reflect Miran's assessment as presented on CNBC and outline his view on the interaction of geopolitical volatility, oil prices, inflation expectations, labor-market dynamics, and the Federal Reserve's policy toolkit.