Fed Governor Miran Advocates 'Large' Rate Cuts, Fueling Market Rally
Comments on avoiding 'real harm' to the economy send Treasury yields below 4% and boost odds of a December pivot by the central bank.
Federal Reserve Governor Stephen Miran issued a strong call for significant interest rate cuts on Tuesday, signaling a notable dovish shift that sent a wave of optimism through financial markets. Arguing that the central bank should not “inflict real harm on the economy just to prove a point,” his comments boosted stocks and sent U.S. Treasury yields tumbling.
Speaking at an event, Miran warned that overly restrictive monetary policy is already having a tangible negative impact, directly tying the current policy setting to a recent uptick in unemployment. His advocacy for "large interest rate cuts" marks one of the most explicit calls for monetary easing from a Fed official in recent months, intensifying investor speculation that a policy pivot is imminent.
The market reaction was swift and decisive. Following his remarks, the S&P 500 and Nasdaq Composite posted solid gains in Tuesday trading. In the bond market, the benchmark 10-year U.S. Treasury yield dropped below 4% for the first time since late October, reflecting a broad reassessment of the future path of interest rates.
Investor expectations for a near-term rate reduction surged. According to data from the futures market, traders are now pricing in an 84.7% probability of a 25-basis-point cut at the Federal Reserve's December meeting, a sharp increase from just over 50% one week ago. This rapid repricing underscores the market's sensitivity to guidance from Fed officials, particularly as recent economic data has shown signs of softening.
Miran’s statements appear to highlight a growing debate within the Federal Open Market Committee (FOMC). While officials like Chair Jerome Powell have maintained a data-dependent stance, emphasizing the ongoing fight against inflation, Miran’s commentary suggests a rising concern about the risks of an economic downturn. According to economists analyzing the situation, this divergence could lead to more contentious policy debates in upcoming meetings.
In his remarks, Miran expressed hope that forthcoming economic data, particularly the next jobs report, would persuade his colleagues on the committee of the need for pre-emptive action to support the labor market and broader economy. His departure from more cautious rhetoric suggests a conviction that the risks of overtightening now outweigh the risks of persistent inflation.
All eyes will now turn to the upcoming November employment figures and the final FOMC meeting of the year in December. While the Fed has held rates steady for several months, Miran's forceful argument has provided the strongest indication yet that the central bank’s consensus may be shifting, moving the prospect of a rate cut from a future possibility to a probable near-term event.