Governor Miran Advocates Proactive Rate Cuts Amidst Data Lags

Key Quotes

"I gave a speech on the inflation outlook last week and you know and I still believe everything I said last week in light of this week's print uh last week's print i mean look there were a couple of anomalies in last week's print related to consequences of the government shutdown which have distorted and delayed economic data that we need to make policy."

Federal Reserve Governor Stephen Myron explains that despite anomalies in recent economic data due to a government shutdown, his views on the inflation outlook remain consistent with his previous statements. Myron indicates that while some data distortions occurred, they are not significant enough to alter his policy perspective.

"The consequences I think are not huge they're when you sort of get to when you get to sort of the ultimate pce print which is what the fed uh which is what the fed targets it's probably ultimately going to be in the neighborhood of two tenths of a point maybe a tenth of that is going to be shelter and a tenth of the other stuff is going to be you know calendar stuff like prices like data were collected in the second half of the month or in black friday stuff but we'll have to sort of see when we get the pce data."

Governor Myron elaborates on the specific impact of the government shutdown on economic data, suggesting that the Personal Consumption Expenditures (PCE) price index, the Federal Reserve's preferred inflation measure, will likely show only a minor distortion. Myron notes that components like shelter and calendar effects might account for these anomalies, emphasizing the need to await the official PCE data for a clearer picture.

"But it's also true that the shelter data were distorted for most of the year because of really long lags with which shelter inflation is calculated if you look at market rents they've been running at about a 1 rate for about two years now right that's not indicative of any price pressures in housing whatsoever but it takes a really long time for measured shelter inflation to catch up to that just because of various quirks of the statistical measurement process that I got into in my speech last week."

Governor Myron highlights a persistent issue with how shelter inflation is measured, explaining that the official data lags significantly behind actual market rent trends. Myron points out that market rents have been stable for two years, suggesting no current price pressures in housing, yet the measured inflation takes a long time to reflect this due to statistical measurement quirks.

"So I don't see a recession in the near term in part because we are adjusting our policy rate uh by lowering it which is appropriate uh you know my view as I've as I've described is that a variety of shocks that hit the economy you know including 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 downward to reflect that downward shift in neutral."

Governor Myron articulates his reasoning for not anticipating a near-term recession, attributing it to the Federal Reserve's appropriate adjustment of policy rates downwards. Myron explains that various economic shocks, including demographic shifts influenced by border policy, have lowered the "neutral rate" (the theoretical interest rate that neither stimulates nor restrains the economy), necessitating a downward adjustment in monetary policy.

"I think it's really really important to avoid groupthink I think if you if you fall into groupthink you stop questioning where you could be wrong and then it just becomes much easier to be a complacent consensus that is in error I think we've seen that over and over this year for example on tariffs."

Governor Myron emphasizes the critical importance of avoiding groupthink within the Federal Reserve, arguing that it leads to a complacency that can result in policy errors. Myron uses the example of tariffs to illustrate how a prevailing consensus can be wrong and that questioning assumptions is vital to prevent such errors.

"If you push out the demand side while you're putting the brakes in the supply side you get inflation if you push out supply and demand at the same time it doesn't really have an effect on prices but do you think it was a mistake that when we had into the biden administration the american rescue plan inflation reduction act sending out checks to american consumers was that an error well it's not appropriate for uh you know for a member of the federal reserve to describe as an error or not but I do think that if you if you hit if you hit the gas on demand while you're hitting the brakes on supply at the same time it will result in higher prices."

Governor Myron explains the inflationary impact of mismatched policy actions, stating that stimulating demand while simultaneously restricting supply will lead to higher prices. Myron avoids directly labeling past fiscal policies as mistakes but reiterates the economic principle that an imbalance between demand and supply-side policies results in inflation.