Miran's 150-Basis-Point Call: A Structural Shift in Fed Policymaking

The core of the current debate is a stark policy divergence. Federal Reserve Governor Stephen Miran, whose term ends at the close of January, has called for about 150 basis points of interest-rate cuts this year. His argument is that monetary policy is clearly restrictive and holding the economy back. This stands in direct contrast to the Federal Reserve's own median projection, which sees only one cut for 2026. Miran's call is not just a minor variance; it aligns with the lowest projection among the Fed's 19 policymakers, which envisions a terminal rate 50 basis points below the next lowest estimate.

This clash frames a deeper structural shift. Miran is a Fed official serving on leave from his role as a top economic adviser to President Donald Trump. His aggressive easing agenda, articulated while on unpaid leave, creates a new dynamic of political pressure. This pressure is being amplified by Treasury Secretary Scott Bessent, who has stated that cutting interest rates will have a tangible impact on the lives of every Minnesotan and is pushing the administration's desire for lower rates. The setup now pits a Fed official with direct White House ties advocating for a rapid policy pivot against the central bank's official consensus, raising the stakes for the independence and credibility of monetary policymaking.

The Economic Foundation: Data, Divergence, and Deregulation

The strength of Governor Miran's thesis hinges on a nuanced reading of the data. On the surface, inflation is indeed retreating. The latest Consumer Price Index report shows annual inflation at 2.7%, with core inflation at 2.6%. These figures are below the peak but still above the Federal Reserve's 2% target, a gap Miran acknowledges as being "near target" but not yet closed. The monthly trend is also cooling, with prices rising just 0.3% in December, a figure that met expectations.

Yet the picture of economic activity is one of deepening divergence. The Federal Reserve's Beige Book paints a picture of slight to modest growth in consumer spending, but this is concentrated. Spending is stronger among higher-income households, who are driving luxury goods and travel, while low to moderate income consumers are increasingly price sensitive. Auto sales, a key barometer of durable goods demand, are little changed to down across most regions. This split suggests the economy is not uniformly robust, and the resilience of spending among the wealthy may not be enough to offset a broader slowdown in consumer confidence and financial strain.

Miran's rationale for aggressive easing rests on two pillars: expectations for easing shelter costs and, more critically, the anticipated impact of deregulation. He expects shelter inflation to moderate, a key component of core prices. But his most distinctive argument is that the Trump administration's sweeping deregulatory agenda will act as a powerful, non-inflationary growth engine. He contends that sweeping deregulation will significantly boost competition, productivity and potential growth, allowing for faster expansion without upward pressure on prices. His projection that 30% of the Code of Federal Regulations could be eliminated by 2030 frames this as a structural shift, not a temporary blip.

This creates a fundamental tension. The data shows inflation cooling but still above target, and growth is uneven. Miran's prescription-a rapid series of cuts-is predicated on a future where deregulation unlocks productivity gains that will soon materialize. For now, the economic foundation for such a bold policy pivot remains fragile and contested.

The Structural Shift: Neutral Rate, Political Leverage, and Institutional Risk

Governor Miran's call for aggressive easing implies a fundamental disagreement on the economy's underlying equilibrium. His assertion that policy is clearly restrictive and holding the economy back suggests he estimates the neutral interest rate-the level where policy is neither stimulative nor restrictive-at a significantly lower point than his colleagues. For the Fed's median projection, the current rate is seen as nearing or at neutral. Miran's view, by contrast, places it well above that level, creating a structural divide. This isn't just about timing; it's about the baseline. If the neutral rate is lower, then even a modest policy rate can be contractionary, justifying a more aggressive easing path to reach a new, lower equilibrium.

This technical disagreement is amplified by Miran's unique dual role, which introduces a potent conflict of interest and political leverage. He serves as a member of the Federal Reserve Board of Governors while on unpaid leave from his position as one of President Donald Trump's top White House economic advisers. This setup allows him to advocate for a policy agenda-rapid rate cuts-that aligns directly with the administration's goals. His repeated calls for "quick series of outsize rate cuts" while on leave from the Council of Economic Advisers (CEA) blur the lines between central bank independence and political influence. It gives the administration a direct conduit to the Fed, using a high-profile official to build a case for easing that may be less about economic data and more about advancing a broader political and regulatory agenda.

The institutional risk here is tangible and growing. This dynamic unfolds against a backdrop of heightened scrutiny, including a Department of Justice investigation into Fed Chair Jerome Powell. When a Fed official with direct White House ties is actively pushing a specific policy stance, it fuels perceptions that the central bank is becoming politicized. This risks eroding the credibility of the Fed's dual mandate and its ability to act as a credible, independent steward of monetary policy. The administration's push for lower rates, coupled with Miran's advocacy, creates a feedback loop where political pressure is channeled through the central bank's own ranks. For investors and markets, this introduces a new layer of uncertainty: the risk that monetary policy may be swayed by short-term political calculations rather than a long-term, data-driven assessment of economic conditions. The structural shift Miran embodies is not just a debate over rates, but a challenge to the very foundations of central bank independence.

Catalysts, Scenarios, and What to Watch

The coming months will test the fragile foundation of Governor Miran's thesis. The primary catalyst is the release of new economic data, which will validate or undermine his near-term outlook. The latest December inflation report, showing annual inflation at 2.7% and core inflation at 2.6%, provides a baseline but does not resolve the debate. The key will be the trend: whether the monthly cooling continues or if persistent pressures in shelter and food costs reignite concerns. Simultaneously, labor market data will be scrutinized for signs of the fragility Miran cites. The December jobs report, which showed a decline in the unemployment rate, has already tempered expectations for immediate cuts, suggesting the Fed may wait for clearer evidence of deterioration before acting.

The central risk is that Miran's low neutral rate estimate and faith in deregulation may not materialize quickly enough to justify his aggressive easing path. If inflation re-accelerates or the labor market proves more resilient than he anticipates, the Fed could be forced into a policy pivot. This would be a direct challenge to his structural shift argument. The market's current pricing, which expects no cut until June, reflects this caution. For Miran's call to gain traction, the data must consistently show the economy is being "clearly restrictive," as he argues, and that the promised productivity gains from deregulation are on the horizon.

This sets up two distinct scenarios for the Fed's policy path. The first, and more likely in the near term, is a gradual, data-dependent approach. As analysts note, if the labor market holds steady, Fed officials will likely begin to take cues from inflation data to lower rates further. This would align with the median projection of one cut in June and another in September. The second scenario is a more aggressive easing cycle, potentially mirroring Miran's 150-basis-point call, but this would require a significant shift in the Fed's consensus and a rapid, visible payoff from deregulation. The path will be determined by the interplay of inflation reports, labor figures, and the political pressure dynamic.

Investors should watch three key developments. First, the Fed's next policy projections in March will be a critical signal of whether Miran's influence is growing or if the broader consensus prevails. Second, the outcome of the Department of Justice investigation into Fed Chair Jerome Powell will show whether the institutional risk of politicization is being addressed or escalating. Third, and most importantly, the monthly inflation and jobs reports will provide the real-time data that either supports Miran's view of a restrictive economy or confirms the Fed's assessment of a delicate balance. The structural shift he embodies is not yet written into policy; it is a bet on future data and political momentum that will be tested in the coming quarters.