Stablecoins Reshape Fed Strategy: Miran Urges Aggressive 50 bps Cut

Fed Governor Stephen Miran has intensified his push for a 50-basis-point rate cut, arguing that a 25-basis-point reduction would be the "minimum" necessary to align with evolving economic conditions. His remarks, delivered during a speech in New York, underscore a growing divide within the Federal Reserve's policy-making apparatus as officials weigh the risks of inflation, labor market cooling, and structural shifts like the rise of dollar-denominated stablecoins Fed's Miran says stablecoin surge could help push interest rates lower.

Miran's stance builds on his prior advocacy for aggressive rate cuts, which he attributes to a lower "neutral" interest rate (r-star) than his colleagues' estimates. He now links this argument to the surging demand for stablecoins, which he claims could structurally depress borrowing costs.

By increasing demand for U.S. Treasury bills and other liquid assets, stablecoins may reduce the Fed's benchmark rate by up to 0.4 percentage points, he said, adding that failing to adjust policy rates in response would risk contractionary effects on growth Fed's Miran says stablecoin surge could help push interest rates lower.

The debate has taken on added urgency as the Fed navigates a fragmented policymaking landscape. While Miran and others, like St. Louis Fed President Alberto Musalem, see room for further easing to insulate the labor market, officials such as Vice Chair Philip Jefferson caution that rates remain "somewhat restrictive" and should be adjusted cautiously as the central bank approaches neutrality Fed's Jefferson Says Interest Rates Still 'Somewhat Restrictive'Fed's Musalem says policy rate has been eased to provide insurance to the labor market. Musalem estimated 50–75 basis points of "insurance" remain to maintain near-full employment, but Jefferson emphasized the need to "proceed slowly" to avoid overstimulating an economy still grappling with inflation above the 2% target Fed's Jefferson Says Interest Rates Still 'Somewhat Restrictive'Fed's Musalem says policy rate has been eased to provide insurance to the labor market.

The split was evident in the Fed's October meeting, where Miran and President Jefferson dissented from the 25-basis-point cut, each for opposing reasons. Miran argued for a 50-basis-point cut to address rapidly falling inflation and a softening labor market, while Jefferson supported a pause, citing lingering inflationary pressures Fed policymakers divided over need for more rate cuts. This divergence mirrors broader uncertainties as the Fed prepares for its final 2025 meeting in December. Chair Jerome Powell has left the door open for another cut but stressed it is "far from" a certainty, reflecting the central bank's balancing act between growth and price stability Fed's Jefferson Says Interest Rates Still 'Somewhat Restrictive'.

Financial markets currently price a 63% chance of a 25-basis-point cut in December, according to trading data, but Miran's calls for a larger reduction highlight the potential for further volatility. His departure from the Fed in January adds urgency to the debate, as the central bank must finalize its policy trajectory before losing a key advocate for aggressive easing Fed's Miran says stablecoin surge could help push interest rates lower.