- Key insight: Fed Governor Stephan Miran, one of the chief architects of President Donald Trump's trade policies, said China's move last week to limit rare earth exports, changed his "sanguine" outlook on economic growth.
- Expert quote: "It's about where the balance of risks has moved and risks exist now that didn't exist a week ago or a month ago," said Fed Gov. Miran.
- What's at stake: Previous concerns about how tariffs might affect inflation led the Federal Open Market Committee to hesitate in cutting short-term interest rates.
Federal Reserve Governor Stephan Miran said Wednesday that rising trade tensions with China strengthen the case for the central bank to move more quickly toward a neutral policy stance.
Speaking at the CNBC Invest in America Forum, Miran said China's decision last week to curb rare earth exports has shifted his economic outlook.
"Deals have been made for most of our large trading partners and then last week China decided that the deals that had been made earlier in the year … no longer bound to them," he said. "I had been operating on the assumption that the uncertainty had dissipated, and therefore I felt more sanguine about some aspects of the growth outlook and now potentially this is back."
Miran, who is
"It is early to conclude that things are actually changing right," said Miran. "But it's about where the balance of risks is moved, right, and risks exist now that didn't exist a week ago, that didn't exist a month ago."
The Chinese government announced Oct. 9 that it would restrict rare earth exports, specifically targeting their use in foreign militaries. In response, Trump threatened to impose a 100% tariff on Chinese imports.
Miran said the shift in risks makes it "even more urgent that we get to a more neutral place in policy quickly, as opposed to waiting for downside data to materialize."
He added that the Fed's current policy stance is "quite restrictive," making the economy more vulnerable to shocks.
"If you hit the economy with a shock when policy is very restrictive, the economy will react differently than it would if policy was not as restrictive," Miran said. "It's even more important now than a week ago, that we move quickly to a more neutral stance."
In earlier remarks, Miran argued that monetary policy is significantly tighter than widely assumed, a view that supports a course change he
Previous concerns
During the CNBC interview Wednesday, Miran said monetary policy should be forward-looking, which he believes is not currently the case.
"Monetary policy has to be forecast dependent and not data dependent," said Miran. "I think that the data can be quite backward looking. You want to be making policy where you think prices are going to be a year from now."
He added that in his forecast, inflation is likely to ease next year, particularly due to
"Shelter inflation, which is the largest component of inflation, it's about 45% of core CPI … I see a lot of disinflation coming from there," he said.
Miran also noted that a decrease in migration could increase the available housing supply.
"If you took 10 million people out of the country and air dropped them somewhere else, you wouldn't magically have 10 million fewer houses," Miran said. "The supply is relatively fixed, and so there's a really strong feed through into inflation from there."
In a separate appearance later Wednesday, Miran said he supports ending quantitative tightening in the near future.
"I don't know what the marginal benefit of additional reductions from here are," commented Miran, speaking at a Nomura Research Forum. "I also think that the size of the balance sheet is downstream of the regulatory environment, and what we should do is concentrate on getting the regulatory environment right, and then we should figure out what the right size of balance sheet is."
A day prior, Federal Reserve Chair Jerome Powell said the central bank's "long-stated plan" is to
