Federal Reserve Governor Stephen Miler said that the US central bank needs to cut interest rates by more than one percentage point by 2026, as he believes that monetary policy is suppressing economic growth.
“I think it’s very hard to say that the policy is neutral. I think the policy is clearly restrictive and is hindering economic growth,” Milan said on Fox Business on Tuesday. “I think it’s reasonable to cut interest rates by more than 100 basis points this year.”
Fed officials cut interest rates for the third consecutive time last month, but suggested that further rate cuts in the near term are not a certainty. Decision-makers have differences in their outlooks on inflation and the labor market. According to the median estimate of their latest projections, they expect one more rate cut by 2026.
Before Milan made the above remarks, other officials also said this week that interest rates may now be close to the neutral level that neither stimulates nor restrains economic growth. Since last September, Milan has been calling for a significant rate cut. At that time, he temporarily stepped down as the chair of the White House Council of Economic Advisers to fill a vacancy on the Federal Reserve Board, which will end this month.
Richmond Fed President Tom Barkin said earlier Tuesday in a comment that the current interest rate level is “within its estimate range of the neutral rate,” referring to the forecast released in December last year. Minneapolis Fed President Neel Kashkari said Monday that given the strong economic growth, he believes “our current interest rate level is very close to neutral.”
Currently, the central bank’s benchmark interest rate is within the range of 3.5% to 3.75%, while the Federal Open Market Committee’s 19 policymakers’ estimates of the neutral interest rate level range from 2.6% to 3.9%, although the median estimate is 3%.
Looking ahead, policy-making will require fine judgment to balance progress in all aspects within our purview, Bagen said in a speech to the Raleigh Chamber of Commerce on Tuesday.
With the recruitment rate remaining sluggish, no one wants the labor market to deteriorate further; and with the inflation rate having been above the target level for nearly five consecutive years, no one wants higher inflation expectations to be digested by the market. This is a delicate balance.
