"Evidence is questionable, incomplete, and almost unconvincing"! Wall Street questions 'Trump advisor' Miran's 'drastic rate cut theory'
The new Federal Reserve governor and “Trump advisor” Stephen Miran's first major policy speech has sparked strong doubts on Wall Street, with economists criticizing his argument for a sharp rate cut as lacking convincing evidence.
On September 22, Miran delivered a speech to the New York Economic Club calling for aggressive rate cuts to quickly reach a neutral rate level, which led Wall Street economists to unanimously question his position. JPMorgan economists issued a comprehensive rebuttal in their latest research report.
On September 30, according to news from Chase Trading Desk, JPMorgan pointed out in its latest research report that Miran proposed to rapidly lower the federal funds rate to 2.5% or even lower, but his reasoning is "dubious," "incomplete," and "almost unconvincing."
The report stated that JPMorgan analysts raised several doubts about Miran's reasoning, including controversy over the neutral rate (r) and flaws in the inflation analysis. The bank also criticized the "selective quoting" of policy arguments in Miran's speech.
Meanwhile, the latest economic data has further weakened Miran's argument, with multiple indicators showing strong US economic performance, contradicting Miran's call for rate cuts.
Miran becomes the "outlier" at the Fed
Appointed by Trump as the new Federal Reserve governor, Stephen Miran called for aggressive rate cuts to quickly reach a neutral rate during his September 22 speech at the New York Economic Club.
Miran's core argument is that Trump administration policies in trade, immigration, taxation, and regulation have significantly reduced the interest rate needed to guard against inflation, making the current benchmark rate too high. He advocates achieving the neutral level through "a very short series" of 50-basis-point rate cuts.
At the Fed meeting on September 16-17, he objected to a 25-basis-point rate cut, supported a larger 50-basis-point cut, and said he would continue to dissent at future meetings.
After the September FOMC meeting, many policymakers were cautious about supporting further rate cuts, let alone rapid successive aggressive cuts.
St. Louis Fed President Alberto Musalem indicated that with inflation remaining high, there is "limited room" for further easing. San Francisco Fed President Mary Daly, though supporting further cuts, insisted that the timeline remains unclear.
JPMorgan bluntly says "almost unconvincing"
JPMorgan Chief Economist Michael Feroli criticized in the report: "We find some of his arguments dubious, others incomplete, and hardly any of them convincing."
Analysts raised several questions about Miran's reasoning:
Controversy about the neutral rate (r): Miran mentioned r as many as 36 times in his more than 11-page speech, but JPMorgan noted that an acceleration in productivity growth should actually lead to an increase in r, not a decrease. The economic logic is that expectations of faster future income growth prompt people to increase current consumption, so the real interest rate must rise to incentivize delaying consumption.
Flaws in inflation analysis: Miran focuses almost entirely on rent inflation and merely assumes that other components will "continue at their current pace." JPMorgan criticizes this approach for risking a confusion between relative price changes and overall price level inflation.
The report pointed out that when arguing about trade policy impacts, Miran referenced an academic paper predicting that tariff shocks would reduce the neutral rate by 30 basis points but "failed to note that this result stemmed from a model prediction of GDP shrinking relative to the baseline."
In assessing fiscal impacts, Miran relied on estimates from the White House Council of Economic Advisers that increased tariff revenue would lower the fiscal deficit and thus reduce the demand for loanable funds. But JPMorgan pointed out that the Congressional Budget Office and market consensus expect that extending the Tax Cuts and Jobs Act will cost more than the revenue from tariffs, resulting in a larger rather than smaller deficit.
JPMorgan believes that unless there is a fundamental shift in economic fundamentals or the composition of the Fed, Miran will have difficulty persuading his colleagues. The bank maintains a gradual rate cut outlook, expecting rates to be lowered gradually by 25 basis points to a range of 3.25%-3.5% by early next year.
Economic data does not support aggressive rate cuts
Multiple economic indicators show the US economy is performing strongly, contrary to Miran’s call for rate cuts:
US economic growth in the second quarter was the fastest in nearly two yearsAugust commercial equipment orders and goods trade deficit data signal good third-quarter growthInitial jobless claims fell to their lowest level since mid-JulyConsumer spending in August grew at a steady paceThe Fed’s preferred core inflation indicator stubbornly remains at 2.9%, nearly a full percentage point above the central bank's 2% target
Carl B. Weinberg, Chief Economist at High Frequency Economics, commented after last Friday’s personal consumption expenditure and core PCE price index report was released:
"This report in no way supports Stephen Miran’s suggestion that policy rates must be immediately slashed sharply. In fact, these data do not recommend any monetary easing!"
Bloomberg economists Tom Orlik and Jamie Rush noted in their report:
"Inflation above target for over four years, consensus forecasts showing inflation will stay high and unemployment moderate for years ahead—the burden of proof for extreme easing lies with Miran."
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