Miran Says Interest Rates Should Fall to 2.5 Percent This Year

President Trump wants borrowing costs significantly lower, and his newest pick to join the Federal Reserve is ready to deliver.

In his first speech as a member of the Board of Governors, Stephen Miran said interest rates should be roughly two percentage points below current levels, or around 2.5 percent.

Mr. Miran warned that keeping interest rates elevated risks imperiling the labor market, which is already showing signs of cooling.

“Leaving short-term interest rates roughly two percentage points too tight risks unnecessary layoffs and higher unemployment,” he said.

Mr. Miran’s comments came in the wake of his decision to vote against the Fed’s decision last week to lower rates by a quarter point. Mr. Miran, who was sworn in to his job just minutes before the Fed’s meeting began, said he wanted to do a larger, half-point cut. Interest rates are now in a range of 4 to 4.25 percent.

Mr. Miran focused his remarks on estimates of what economists call “R-star,” which refers to the level of interest rates that neither speeds up the economy nor slows it down. He argued that immigration restrictions and higher saving rates because of tariffs and the raft of tax cuts passed this year had substantially lowered estimates.

He also argued that housing-related inflation, which is a substantial driver of overall price pressures, would sharply decelerate in the coming years. While he acknowledged that this was an “optimistic” view, he said “forecasters have underappreciated the significant impact of immigration policy on rent inflation — both on the way up and, now, on the way down.”

“Moving too slowly to update a rapidly changing neutral rate raises the risk of policy mistakes,” Mr. Miran added.

In a moderated discussion after his remarks, Mr. Miran pushed back on the idea that his desire to cut interest rates as substantially as he suggested was a sign of panic.

“I’m not panicky,” he said. Rather, he said, a 0.75 percentage point or larger cut would send that signal.

Mr. Miran’s analysis stands apart from his new colleagues, many of whom have argued that the neutral rate has in fact risen since the pandemic as supply chains have been rewired and the global economy has faced successive rounds of inflation shocks. In the latest projections released by the Fed last week, most officials thought that over the longer run, the neutral rate was around 3 percent.

That explains why, in part, many officials do not see scope for the Fed to lower interest rates substantially in the next year. The latest forecasts show that most policymakers expect another half a percentage point reduction by year-end, which would bring borrowing costs to a range of 3.5 to 3.75 percent. In 2026, most officials expect interest rates to decline only another quarter of a percentage point.

Still, seven of the 19 policymakers penciled in fewer cuts this year, suggesting that there are a range of views about how much further to lower borrowing costs as inflation re-accelerates as a result of Mr. Trump’s tariffs and the labor market wobbles.

Mr. Miran on Friday confirmed he had penciled in a far lower forecast last week, supporting interest rates declining this year to between 2.75 and 3 percent. That would suggest big cuts at the two remaining meetings this year, in October and December.

Mr. Miran affirmed his support to get inflation down, however, and recognized that any attempt to raise the 2 percent target would give the appearance of the Fed moving the goal posts. Since the pandemic, inflation has hovered above 2 percent. He also pushed back on the idea that the Fed’s job was to manage longer term market-based interest rates, saying it was not an “action item” for the central bank.

Mr. Trump, has called on the Fed to slash borrowing costs to make interest payments on the country’s debt more affordable.

Compared with Mr. Miran, other Fed officials appear more worried about the inflation outlook and less concerned about the health of the labor market. What is not yet clear is if the slowdown in monthly jobs growth reflects a drop in demand for workers or a reduction in the supply of workers as Mr. Trump’s immigration crackdown has an impact.

Beth Hammack, president of the Federal Reserve Bank of Cleveland, said on Monday that interest rates were putting only a little downward pressure on the economy. She warned that cutting interest rates too quickly raised the risk of overheating the economy.

Also on Monday, Alberto Musalem, president of the St. Louis Fed, suggested that there was limited room for the Fed to cut further and that it would depend on how much the labor market was weakening.

Raphael Bostic of the Atlanta Fed signaled that he would not support additional interest rate cuts this year.

The Fed’s interest rate decisions are made by 12 policymakers, which includes all seven governors, the president of the New York Fed and a rotating group of four presidents from the regional banks.

On Monday, Mr. Miran defended his willingness to uphold the institution’s longstanding independence, which has come under threat as a result of Mr. Trump’s relentless pressure campaign.

Mr. Miran has drawn scrutiny for his decision to take only a temporary leave from his role as Mr. Trump’s top economic adviser while serving at the Fed, raising questions about whether he would be beholden to the president, who technically remains his boss.

Mr. Miran has said his term at the Fed is supposed to last only four months. But, he can stay on in the role until the president selects a successor.

Asked on Monday what he would do if the president called him to request a certain policy action, Mr. Miran said he would listen to Mr. Trump’s views but ultimately base his decisions off his own analysis of the economic backdrop.