Fed Governor Miran (Dove) says Fed should not be making policy based on short-term headlines; it is premature to judge the current situation
- Need to be looking at a year and a half, two years out, given the lag in monetary policy.
- Historically, energy shocks impact headline inflation, not core inflation.
- Policy outlook depends on inflation expectations.
- Don't want to respond to oil price shocks in case it leads to a wage price spiral.
- Labour market could benefit from additional support.
- Many around the FOMC table, including himself, were hesitant to draw conclusions from the Iran conflict.
- Needs more clarity on whether policy should react to current events.
- Expects higher headline inflation but it is to soon to say if it will impact core inflation.
- Higher energy prices depresses demand and can offset some of the inflationary impact.
- Fed historically looks through first-round of all price shocks, it would be unusual to focus on them this time around.
- Second round effects and wage rises could require a rate hike. But current conditions do not warrant consider rate hikes.
- Is watching for broad based second round impacts from higher energy.
- Outlook remains for rate cuts.
- Pencilled in four rate cuts this year (vs six in December SEPs) - Note, Miran had alluded before the FOMC he sees four 25bps rate cuts this year.
- Expects labour market will continue with gradual softening.
- Balance of risks got worse on both sides.
Context
Fed Governor Miran's comments indicate a continued dovish stance on policy, emphasizing that the Federal Reserve should avoid reacting to short-term economic shocks, such as energy price spikes, which do not typically alter core inflation. His perspectives on a potential need for rate cuts this year, alongside a more cautious approach toward immediate policy adjustments, suggest that the Fed is prioritizing long-term economic stability over knee-jerk reactions, which could influence USD positioning and expectations around future rate paths.
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