Miran: Rate Hike Would Be 'Weird' at Fed Meeting

Stephen Miran, who previously served as a Federal Reserve governor, stated that increasing rates at the upcoming September Fed meeting would be an error. According to him, the latest inflation figures are skewed rather than truly high.

Miran, appearing on CNBC's Squawk Box, remarked that the Fed's preferred measure is the Personal Consumption Expenditures (PCE) index. He noted that the PCE has diverged from its typical relationship with the Consumer Price Index (CPI) by roughly one percentage point.

Inflation Data Distorted by Portfolio Management Fees

Miran stated that core CPI is around 2.5%, which is a historically typical figure. He indicated that the typical 40-basis-point difference between CPI and PCE would imply core PCE close to 2.1%.

In July, core PCE increased by 0.2%. On a year-over-year basis, it remained at 3.3%, the same pace as June. Miran described that inversion as largely a measurement error.

He assigned around 70 basis points of the discrepancy to two elements. Portfolio management fees climb automatically when stock prices go up.

Software price rises, he noted, incorrectly treat AI improvements as inflation rather than as enhancements in quality.

Miran mentioned that the Bureau of Economic Analysis (BEA) intends to update its methodology in just over a month, which coincides with other reports indicating a late-September revision. He anticipates that this adjustment will reduce core PCE.

Miran noted that the Federal Reserve Act assigns the Fed two objectives: maximum employment and stable prices. He stated that increasing rates to combat inflated inflation metrics could lead to needless job losses.

He pointed out that the Fed kept rates unchanged in June and July as inflation figures improved.

"There's no reaction function that gives you both a hold in June and July and a hike in September."

Stephen Miran, CNBC

Fed Autonomy and the Outlook for Rate Increases

Miran talked about Federal Reserve Chair Kevin Warsh's inaugural Jackson Hole address, scheduled for this week. He argued that the central bank should focus on its employment and price goals instead of commenting on fiscal policy.

The Treasury's bond buyback program includes purchases at the long end of the yield curve. Miran stated that additional liquidity enhances market signals rather than skewing them, countering a critique of the initiative that he claimed he has heard from others.

Miran argued that current policy should aim for inflation in late 2027. He noted that interest rate adjustments require 12 to 18 months to impact the economy.

He does not believe the present distortions will continue for that duration.