• Federal Reserve Governor Stephen Miran publicly estimates the real neutral interest rate at 0.5%, far below prevailing Fed views.
  • Miran opposed the recent quarter-point cut, advocating instead for two half-point reductions to prevent rising unemployment.
  • He attributes the lower r* to nonmonetary factors including reduced immigration, tariff revenues, and aging demographics.

Federal Reserve Governor Stephen Miran has publicly broken with his colleagues, estimating the U.S. real neutral interest rate at just 0.5% and calling for much more aggressive monetary easing to align policy with what he describes as a fundamentally changed economic landscape.

Miran detailed his reasoning in a recent speech at the Economic Club of New York, focusing on how demographic shifts and fiscal policy changes have sharply reduced the neutral rate—the theoretical level that neither stimulates nor restrains the economy. His estimate stands in stark contrast to the higher r* implied by the Federal Open Market Committee's more cautious approach to rate cuts.

"Current policy is excessively restrictive," Miran argued, stating that keeping rates two percentage points above his estimated neutral rate would cause "unnecessary layoffs and higher unemployment." He opposed the Fed's most recent quarter-point reduction, advocating instead for two half-point cuts to quickly close the gap, according to people familiar with his internal deliberations.

The governor pointed to three primary factors driving his lower neutral rate calculation. Reduced population growth due to stricter immigration enforcement has lowered annual U.S. population growth from approximately 1% to 0.4%, translating to a 0.4 percentage-point decline in r*. Increased tariff revenue has had the ancillary effect of lowering the federal budget deficit, reducing upward pressure on interest rates. Meanwhile, aging demographics are further increasing the supply of capital while reducing investment demand.

Miran's stance places him at odds with other Fed officials who see limited room for further easing. St. Louis Fed President Musalem, for example, has cited inflation risks and robust economic indicators—including strong stock markets and healthy bank lending—as reasons for caution. The Fed's benchmark rate remains in the 4-4.25% range after the latest policy decision.

The political context adds another layer of complexity. Miran remains on unpaid leave from his position as top economic advisor to former President Trump to preserve Federal Reserve independence, and he has clarified that Trump did not influence his monetary stance. However, the Trump administration has persistently urged aggressive rate cuts to stimulate growth and reduce government debt servicing costs.

When reached for comment, a Fed spokesperson declined to address individual governor's policy positions but reiterated the committee's commitment to data-dependent decision-making.

The debate has spread among policymakers and economists, highlighting fundamental disagreements over how to account for structural changes in the economy. While some experts see rising inflation risks from further rate cuts, Miran and his supporters stress that failing to respond to a falling neutral rate poses the greater threat to the labor market.

Correction: An earlier version of this article misstated the timing of Governor Miran's Economic Club of New York speech. It occurred recently, not last week.