New Federal Reserve governor Stephen Miran has could play a key role in next month’s monetary policy decision, since the committee is split on whether to cut interest rates.
Miran, who was appointed this fall by President Donald Trump to fill an open seat on the Fed board, has voted against the Fed’s decision to lower interest rates by a quarter of a percentage point the last two meetings. He instead has said he preferred a larger half percentage point cut, more in line with Trump’s desire to see the Fed’s target rate fall quickly. But now, given a given a divided Fed, he could end up being a critical, or even tiebreaking, vote.
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Miran said Friday on Bloomberg TV that he would “absolutely not” dissent if doing so jeopardized a 25-basis point cut.
“I would absolutely vote for 25-basis point cut if my vote were the marginal vote,” Miran said. “There’s no there’s no question about that. To do otherwise would be to cause real harm to the economy for purposes of vanity, and that’s not who I am.”
Typically, investors and Fed watchers generally have a sense of what the central bank plans to do with interest rates at its next meeting of the Monetary Policy Committee.
But with less than three weeks until the next Fed meeting, there is still much uncertainty and mixed thoughts on whether the Fed might cut interest rates for a third meeting in a row, or pause rate-cutting over lingering concerns about inflation.
Investors are pegging the odds of a December rate cut at 72%, according to the CME Group’s FedWatch tool, which calculates the probability using futures contract prices for rates in the short-term market targeted by the Fed. The odds of a cut have been yo-yoing, and on Thursday the odds of a cut were under 40%.
Miran’s comments about being the tiebreaking vote come the same day that New York Fed President John Williams, one of the most influential members of the board, appeared to hint at a cut, which moved markets. While he didn’t explicitly say he expected a cut at the next meeting, he did say he anticipated one in the “near term.”
“I view monetary policy as being modestly restrictive, although somewhat less so than before our recent actions,” Williams said. “Therefore, I still see room for a further adjustment in the near term to the target range for the federal funds rate to move the stance of policy closer to the range of neutral, thereby maintaining the balance between the achievement of our two goals.”
Fed Chairman Jerome Powell has also worked to tamp down investor expectations that a December interest rate cut is a sure thing.
At the FOMC’s last meeting, which came at the end of October, just a few days before the shutdown, Powell poured cold water on the idea that a December rate cut is baked in. That caused stocks to sink at the time.
“A further reduction in the policy rate at the December meeting is not a foregone conclusion,” Powell said.
The chairman said there was no consensus among the 19 people who participated in the monetary policy committee meeting about what should be done with interest rates at the Fed’s next meeting in December.
“There were strongly differing views today, and the takeaway from that is we haven’t made a decision about December,” he said.
Likewise, Fed Vice Chairman Phillip Jefferson — another influential member of the board — indicated the board should move slowly this week.
“The current policy stance is still somewhat restrictive, but we have moved it closer to its neutral level that neither restricts nor stimulates the economy,” Jefferson said. “The evolving balance of risks underscores the need to proceed slowly as we approach the neutral rate.”
But other Fed members who will vote on the decision have been more dovish. Fed Governor Christopher Waller, who some speculate could be nominated to replace Powell, came out this week in favor of a December rate cut.
“I am not worried about inflation accelerating or inflation expectations rising significantly,” Waller said. “My focus is on the labor market, and after months of weakening, it is unlikely that the September jobs report later this week or any other data in the next few weeks would change my view that another cut is in order.”
The Fed is attempting to balance its dual mandate — price stability and maximum employment. Inflation remains too high, but there are recent signs that the labor market is softening meaningfully.
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The situation has been made more uncertain because of economic data that was lost during the government shutdown. For instance, the September jobs report was just released on Thursday, and, this week, the Bureau of Labor Statistics revealed there will be no October jobs report or consumer price index report.
Also, the September jobs report raised more questions about the state of the labor market. It found that the economy added 119,000 jobs in September and the unemployment rate ticked up a tenth of a percentage point to 4.4%. But there were also downward revisions to past months, which showed the labor market has been in worse shape than was previously reported.
