Fed's Miran downplays inflation risks, rethinks rate cuts

• Key takeaway: Fed Gov. Stephen Miran said he could now foresee three short-term interest rate cuts instead of four, citing shifts in the underlying composition of headline inflation. 
• Expert Quote: "What's happened in the last couple of months before the war broke out is that even though headline inflation was going sideways, the underlying composition got a little bit less favorable." — Fed Gov. Stephen Miran
• What's at stake: Expectations are rising that the Fed's rate-setting committee will hold monetary policy steady for the foreseeable future as it assesses how the war could affect the economy and consumer sentiment. 

WASHINGTON —  Federal Reserve Gov. Stephen Miran on Thursday downplayed the impact of tariffs and the Iran war on inflation, while acknowledging he is reconsidering his outlook for rate cuts this year. 

Miran, speaking at the Washington Economic Festival, said the shock of higher energy prices stemming from U.S. involvement in the Iran conflict should be "looked through," as it is unlikely to affect inflation readings in the longer term.

"If the effect of energy on the economy boosts the price level immediately, but not 12 to 18 months from now, then there's nothing that you can really do about it, and so you have no choice but to look through," Miran said. "I don't have a reason for thinking that the energy events — the war — have changed the modal outlook for inflation 12 to 18 months from now."

He added that a prolonged energy crisis could raise "risks further out," but said that outcome is unlikely. 

Miran, one of the architects of the Trump administration's tariff regime, pushed back against the idea that the White House's trade policies have raised core goods prices, noting that this conclusion relies on comparisons with pre-pandemic trends.

"People compare what goods have done recently and compare them to what goods were doing in the past, usually to trends from before the pandemic," he said. "To me, that's an unwarranted conclusion; a lot has happened to international trade and supply chains, not just tariffs."

Miran also criticized economists who attribute rising goods inflation primarily to tariffs, saying other factors are at play.

Mortgage rates hit 4-week low on Iran conflict news

A 21.2% spike in the price of gasoline was the biggest contributor to a 0.9% increase in the Consumer Price Index in March, according to a Friday report from the Bureau of Labor Statistics. The agency said other price increases were largely contained.

"The economics community usually has very rigorous standards for saying that X caused Y, and I think that that's been a little bit of a mistake in the last year, blaming all sorts of things that drive goods inflation and disruption on just tariffs," he said. 

Miran said his outlook for monetary policy has shifted in recent months, though he did not specify all the factors behind the change. 

"What's happened in the last couple of months before the war broke out is that even though headline inflation was going sideways, the underlying composition got a little bit less favorable," he said. "That degree of underlying favorability declining, to me, made the inflation mix a bit more problematic than it was just at the beginning of the year. In March, I wrote down that I thought four cuts was perfect for this year, but if I were writing down a dot today, I might have three." 

Miran said in March that he had anticipated six quarter-point cuts in 2026 during the December Federal Open Market Committee meeting before revising that outlook down to four. 

Miran reiterated that disinflation in the housing sector and expectations that core goods prices will decline make him confident inflation will cool. The Fed official added he believes monetary policy should be loosened based on his forecast that inflation will be running at target next year and the labor market will need to be propped up.

"Those two things together would suggest to me that interest rates should probably be slightly below neutral," he said. "But given the risk, let's just go neutral instead of thinking of going below."

Since being confirmed in September, Miran has pushed for lower short-term interest rates, voting at every FOMC meeting to cut rates by 25 basis points. The federal funds rate target range is currently 3.5% to 3.75%.