The most extreme policy dove on the Federal Open Market Committee (FOMC) took another dovish turn this week, arguing that benchmark interest rates should be more than a full percentage point lower than their current range.
Federal Reserve Governor Stephen Miran, whose temporary term on the Fed’s board and its 12-member rate-setting committee is due to expire Jan. 31, said during a Fox Business interview Tuesday that monetary policy is “clearly restrictive and holding the economy back.”
“With underlying inflation basically within noise of our target, I think that well over 100 basis points of cuts are going to be justified this year,” he stated.
The Fed’s inflation target is 2% over the long run. The personal consumption expenditures (PCE) price index — the Fed’s preferred inflation measure — clocked in at an annual rate of 2.8% in September, which is the most recent PCE data to be released due to the 43-day government shutdown in October and November.
Miran attributed “almost all of the excess inflation” over the Fed’s target to “statistical quirks” related to backward-looking housing inflation data.
Miran’s characterization of monetary policy as “clearly restrictive” is at odds with the view of Minneapolis Fed President Neel Kashkari, who told CNBC on Monday that “we’re pretty close to neutral right now,” meaning policy that neither stimulates nor restricts economic growth.
Kashkari’s comments highlighted the nuanced challenge the Fed currently faces of fulfilling both sides of its dual mandate: stable consumer prices and maximum employment.
“The job market is clearly cooling,” Kashkari said, but “at the same time, inflation is still too high.”
The Minneapolis Fed head said businesses in his region have been slow to hire. He added that big companies he’s spoken with are using artificial intelligence and “it is affecting their hiring plans as they’re trying to deploy AI.”
Tom Barkin, president of the Federal Reserve Bank of Richmond, also weighed in on the Fed’s monetary outlook Tuesday in a speech peppered with musical references to Elton John, Billy Joel, Phil Collins and other pop-rock stars.
“Against All Odds” was how Barkin characterized the resilience of the U.S. economy in 2025, referencing Collins’ title song from the tepid 1984 remake of the film noir classic “Out of the Past.”
He noted that businesses have shown fortitude in the face of increased goods costs from tariffs, leveraging reduced hiring, lower turnover and automation to salvage operating margins.
Still, Barkin cautioned that overreliance on AI to spur economic growth is a slippery slope.
“The two engines of today’s economy are the AI ecosystem and wealthy consumers,” Barkin remarked. “Notably, these two are connected. What would happen if the AI frenzy were to ease? It has been supporting virtually all of the growth in business investment.”
Like Kashkari, Barkin believes the FOMC’s successive quarter-point interest rate cuts at its final three meetings of 2025 brought policy “within the range of its estimates of neutral.” And like his Minneapolis-based colleague, he emphasized that both sides of the Fed’s dual mandate bear watching in 2026.
“With the hiring rate low, no one wants the labor market to deteriorate much further. With inflation above target now for almost five years, no one wants higher inflation expectations to get embedded,” Barkin concluded. “It’s a delicate balance.”
