• Federal Reserve Governor Stephen Miran states the neutral interest rate is not zero, advocating for rapid rate cuts
  • Miran views current policy as overly restrictive, posing risks to employment mandate
  • The comments come amid ongoing debate about appropriate monetary policy settings

Federal Reserve Governor Stephen Miran has taken a firm stance in the central bank's internal debate over interest rates, stating he doesn't believe the neutral rate of interest is zero and calling for rapid rate cuts to address what he sees as overly restrictive policy.

"I don't think the neutral rate is zero," Miran said during a financial conference on Thursday, adding that current policy settings risk harming the Fed's employment mandate. His comments represent a significant departure from some policymakers who have advocated for maintaining higher rates for longer.

Miran's position suggests he views the current federal funds rate as substantially above the neutral level—the theoretical rate that neither stimulates nor restrains economic growth. According to people familiar with his thinking, Miran believes the restrictive stance poses unnecessary risks to the labor market as inflation continues to moderate.

The debate over the neutral rate has intensified in recent months as Fed officials weigh when to begin easing policy. While inflation has cooled from its peak, it remains above the central bank's 2% target, creating tension between the dual mandate of price stability and maximum employment.

Market participants have been closely watching for signals about where policymakers see the neutral rate, with estimates varying widely among Fed officials. Miran's comments suggest he places the neutral rate significantly higher than zero but below current levels, justifying his call for quicker policy normalization.

Efforts to reach other Fed officials for comment on Miran's remarks were unsuccessful Thursday afternoon. A spokesperson for the Federal Reserve declined to elaborate beyond Miran's public comments.

Treasury yields showed little immediate reaction to the remarks, with the 10-year note trading at 4.28% in afternoon trading. Fed funds futures continued to price in a high probability of rate cuts beginning later this year, though the timing remains uncertain.

The neutral rate debate has taken on increased importance as the Fed navigates the final phase of its inflation fight. Some economists argue that structural changes in the economy, including higher government debt levels and changing demographic trends, have pushed the neutral rate higher than in the pre-pandemic era.

Miran's focus on nonmonetary factors like border and fiscal policies in recent speeches indicates he believes external economic conditions significantly influence the appropriate setting for monetary policy. This suggests government actions outside the Fed's direct control are playing a larger role in shaping the economic outlook and policy decisions.

Correction: An earlier version of this article misstated the timing of Miran's comments. They were made Thursday, not Wednesday.