US Interest Rates | Milan: Softening Job Market Signals Fed Should Cut Rates

Federal Reserve Board member Stephen Miran said in an interview with Bloomberg Television that it is still too early to draw conclusions about how soaring oil prices will impact the U.S. economy. He maintains his original stance, believing that the softening labor market requires the Fed to cut interest rates further.

Miran pointed out that before making a real adjustment to the outlook, all information should be in place. Regarding the surge in energy prices, he believes that it is premature to form a clear view now about the next 12 months, and this is a key focus for monetary policymakers. Traditionally, such oil price shocks are overlooked, meaning previous policy outlooks remain unchanged, which included gradual rate cuts.

Discussing last week’s Fed meeting and the latest projections, Miran said he has lowered his expectation of six rate cuts this year to four. This adjustment is reflected in the Federal Open Market Committee (FOMC) projections released after last week’s meeting. He also raised his inflation outlook.

He believes the labor market still needs additional support from monetary policy, which is why he voted against the last meeting’s decision. While inflation risks are somewhat concerning, the risk of unemployment is equally worrying, as negative supply shocks from oil prices also represent negative demand shocks.

Miran said the key is whether rising oil prices start to push up inflation expectations and wage levels, and he believes neither has happened at this point.

Last week, the FOMC maintained the federal funds rate target range at 3.5% to 3.75%. Some Fed officials are weighing the possibility that if oil shocks cause inflation to rise sufficiently, rate hikes may be needed at some point in the future. Most officials expect to cut rates once this year.

Miran has consistently advocated for aggressive rate cuts and was the only voting member at this FOMC meeting to support a rate reduction.