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Federal Reserve governor Stephen Miran has said that “phantom inflation” is distorting the US central bank’s decision-making and causing it to keep interest rates too high.
Miran, a staunch ally of US President Donald Trump and a vocal proponent of lower rates, said on Monday that when “noise” was stripped out, underlying inflation was close to the Fed’s target.
“We must be thoughtful in considering genuine underlying inflationary pressures,” Miran told an audience at Columbia University. “Excess measured inflation is unreflective of current supply-demand dynamics.”
The Fed has cut rates by 25 basis points at each of its past three meetings. Last week it lowered them to a three-year low of between 3.5 and 3.75 per cent.
The rate-setting Federal Open Market Committee (FOMC) has been deeply divided over the pace and scale of the cuts and whether to prioritise risks to inflation or the labour market. Three of its members dissented from last week’s decision — including Miran, who wanted a larger cut of 50bp.
John Williams, president of the New York Fed and vice-chair of the FOMC, signalled on Monday that the bar for more cuts was high, saying the central bank’s monetary policy was “well positioned as we head into 2026”.
“After a year of uncertainty, we will be starting 2026 from a place of resilience,” Williams said in New Jersey. “The economy is poised to return to solid growth and price stability.”
The Personal Consumption Expenditure index, the Fed’s preferred inflation measure, sat at 2.8 per cent in September. But Miran said that once distortionary effects were accounted for, the actual rate was “just a hair above” the central bank’s 2 per cent target.
“A better measure of underlying inflation would account for distortions from shelter and imputed prices,” he said. “Removing imputed phantom inflation like portfolio management, market-based core inflation is running below 2.6 per cent.
“If we further remove housing and look at market-based core ex[cluding] shelter, underlying inflation is running below 2.3 per cent, within noise of our target.”
Miran added that keeping policy “unnecessarily tight” would “lead to job losses”.
His comments stand in stark contrast to remarks last week by Kansas City Fed chief Jeff Schmid, another FOMC voter who said that he was hearing persistent concerns over prices from households and businesses in the west and midwest.
In a statement following last week’s rate decision, Schmid, who wanted rates held steady, wrote: “Inflation remains too high, the economy shows continued momentum, and the labour market — though cooling — remains largely in balance.”
Releases of data on inflation and employment have been delayed by the recent record-length US government shutdown, obscuring Fed policymakers’ view of the health of the country’s economy. Fresh official statistics are expected to be released on Tuesday and Thursday.
The FOMC divide over its approach to borrowing costs comes as Trump piles pressure on the Fed to cut rates more quickly. The president said last week’s cuts should have been “at least double” and blasted Fed chair Jay Powell as a “stiff”.
Trump is expected in the coming weeks to name a replacement for Powell, whose term as Fed chair ends in May. The president said last week that National Economic Council director Kevin Hassett and former governor Kevin Warsh were the frontrunners for the position.
Additional reporting by Claire Jones in Washington
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