Federal Reserve Governor Milan: A government shutdown will not affect my view of the U.S. economy; a 50 basis point rate cut should be made in December.

On Monday, Federal Reserve Governor Stephen Miran stated that to prevent future economic weakness in the US, he supports further interest rate cuts.

In an interview with CNBC, Miran insisted that the pace of rate cuts should be faster than the traditional 25 basis points at a time. Just like at the previous two Federal Open Market Committee (FOMC) meetings, he again advocated for a 50 basis point rate cut, while also stating that at minimum, there should be a 25 basis point cut. Miran said:

“Of course, nothing is certain. Between now and the meeting, we may see new data that makes me change my view. But absent new information that would adjust my forecast, outlook-wise, I still believe a 50 basis point rate cut is appropriate, just as I did before, but at the very least, it should be 25 basis points.”

Although Miran is calling for a more aggressive rate cut, the Fed FOMC opted for 25 basis point cuts at both the September and October meetings. Miran voted against both decisions, and no other officials sided with him. Kansas City Fed President Jeffrey Schmid also voted against in October, but his reasoning was that he preferred no rate cut at all.

Despite only two dissenting votes at the Fed's October meeting, several officials’ public statements reveal clear divisions within the committee.

Fed Chair Jerome Powell also mentioned these divisions at a recent press conference, emphasizing that another rate cut in December is still undecided. Some officials remain cautious about further cuts due to concerns that inflation is still above the 2% target; those in favor of continued cuts are worried about further weakness in the labor market.

Miran stated that failing to continue easing policy would be shortsighted:

“If you base policy on current data, you're actually looking in the rearview mirror, because policy transmission takes 12 to 18 months to truly affect the economy. So you have to set policy based on where you think the economy will be in a year to a year and a half.”

In the absence of official economic data during the US government shutdown, policymaking faces uncertainty. Miran said that current data already show that both inflation and the labor market have weakened, which should make the Fed adopt a more dovish stance than the three rate cuts projected for the full year in its September outlook.

According to CME Group’s FedWatch tool, the market currently estimates about a 63% chance of another Fed rate cut in December, and this probability has gradually declined since the October meeting.

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