Stephen Miran: A Temporary Ally, Or A Permanent Power Play?

Trump reshapes the Fed's landscape with an unexpected short-term appointment.  

On Thursday, President Trump nominated his senior economic advisor, Stephen Miran, to fill a vacant seat on the Federal Reserve Board of Governors. This seat, left open by the early resignation of Governor Adriana Kugler, is set to expire in January next year.  

According to the latest media analysis, this move serves a dual purpose: it temporarily installs a rate-cut ally at the Fed while cleverly buying time for Trump to strategize over the critical appointment of the next Fed chair.  

Trump explicitly stated, "In the meantime, we will continue to look for a permanent replacement," signaling that this is merely a temporary arrangement. The market interprets this as Trump laying the groundwork for a strategic decision regarding the Fed chair position after current Chair Jerome Powell's term ends in May next year.  

Following the announcement, concerns over the potential erosion of the Fed's independence intensified, causing the U.S. dollar index to dip. Nomura currency strategist Yusuke Miyairi noted that worries about diminished Fed independence "could naturally lead to selling pressure on the dollar."  

For investors, this appointment not only suggests the possibility of more voices within the Fed favoring rate cuts but, more importantly, signals the policy path Trump hopes the Fed will take. It also plants the seeds for potentially more radical reforms at the central bank in the future.  

A "Transitional" Appointment: Buying Time, Preserving Options  

The core of Trump's nomination of Miran lies in its "transitional" nature. Miran's term will last only until the end of January next year, making this a classic stopgap measure.  

As Evercore ISI analysts Marco Casiraghi and Gang Lyu pointed out in a client note, "By choosing Miran, Trump has made a transitional appointment, buying himself time until January next year to make the major decision."  

They believe this move allows Trump to keep his options open without locking in his picks for the next Fed governor—or, more critically, the next chair—too early.  

Under the rules, a nominee for Fed chair must first be a member of the Board of Governors. Once Miran's short term ends, the seat will become a full 14-year term. This creates an opportunity for Trump to bring in an "outsider" early next year and eventually appoint them as Fed chair. At the same time, it doesn’t rule out the current Governor, Waller, or other candidates. Public reports indicate that former Fed Governor Kevin Warsh and National Economic Council Director Hassett are also on Trump's list.  

An 'Ally' Joins the Fed  

While gaining strategic time, Trump also secures a more immediate benefit: adding a policymaker to the Fed who supports his push for rate cuts.  

Trump has long criticized the Fed and Chair Powell for moving too slowly on rate cuts, arguing that high interest rates increase the government's debt burden and stifle economic growth.  

Miran, who holds a Ph.D. in economics from Harvard, aligns closely with Trump on policy. If confirmed by the Senate, he would add a key vote to the dovish camp within the Federal Open Market Committee (FOMC).  

Joseph Brusuelas, chief economist at RSM US LLP, noted that Miran's addition would represent "an additional vote for rate cuts or a dissenting vote if the committee chooses to hold steady." Notably, at last month's policy meeting, Governors Waller and Bowman already dissented in favor of rate cuts. Miran's arrival could make future Fed policy decisions even more contentious.  

On tariffs, Miran will also be a strong ally for Trump. He has publicly stated that Trump's tariffs show "no significant macroeconomic evidence of price pressures."  

Escalating Challenges to Fed Independence  

The reason Miran's nomination has drawn such intense market scrutiny lies not only in his dovish stance but also in his past proposals for radical reforms to the Fed.  

In a March 2024 paper co-authored with current Treasury Chief of Staff Dan Katz, Miran attributed the Fed's policy missteps to "groupthink" and proposed a series of measures aimed at weakening the central bank's independence. These included shortening governor terms, clarifying that governors "serve at the pleasure of the president," and placing the Fed's funding under congressional appropriations control.  

Miran and Katz bluntly stated in the paper that Fed independence "can also empower without accountability." This view has unsettled many economists and investors. David Wilcox of the Peterson Institute for International Economics responded that the plan would "shatter market confidence," as historical experience shows that greater political control often leads to worse inflation outcomes.  

Miran has also written papers related to the "Mar-a-Lago Accord," advocating for a weaker long-term dollar and publicly defending Trump's pressure on the Fed.  

While some analysts argue that Miran, as a new member, is unlikely to single-handedly alter the Fed's policy direction or undermine its independence in the short term, Brusuelas notes that his presence sends a clear signal: Trump wants "a more inflation-tolerant, growth-promoting monetary policy."  

At the same time, this could mark the end of the FOMC's long-standing tradition of striving to "speak with one voice." Brusuelas added, "Unanimous decisions on policy direction may become a thing of the past in the foreseeable future." For markets, this means adapting to a Fed with more diverse—and divisive—viewpoints.  

Ultimately, the market's focus will remain on the race for the next Fed chair. Miran's nomination undoubtedly adds more uncertainty to that contest.