"Trump" appointed director Milan: The Federal Reserve risks recession if it does not continue to cut interest rates next year

Stephen Miran, the Federal Reserve governor appointed by President Trump this year, warned that unless the Federal Reserve continues to cut interest rates next year, the U.S. economy will face the risk of recession. This statement sharply contrasts with the cautious stance of several Federal Reserve officials recently, highlighting deep divisions within the Fed regarding the path of interest rate policy.

On Monday, the 22nd, Eastern Time, Miran stated in an interview, "If we do not adjust our policy, we will face an increasingly severe risk of economic recession." He emphasized that the unemployment rate has risen to levels beyond expectations, and this data should prompt Federal Reserve decision-makers to shift towards a dovish stance.

Miran also mentioned that he has not yet decided whether to support a 25 basis point or 50 basis point cut at the next Federal Open Market Committee (FOMC) meeting in January, but believes that a few more cuts may still be necessary. He added, "I do not think there will be a recession in the short term," but the rising unemployment rate should encourage Federal Reserve officials to continue cutting rates.

Miran's remarks are in stark contrast to those of other Federal Reserve officials recently. A day before his comments, an interview released on Sunday showed that Beth Hammack, the President of the Cleveland Federal Reserve who will have voting rights at next year's FOMC meetings, stated that pausing rate cuts is her current baseline expectation. New York Fed President John Williams, Boston Fed President Susan Collins, and Governor Christopher Waller also expressed a more cautious stance last week.

Miran Advocates for Continued Rate Cuts to Prevent Economic Deterioration

On Monday, Miran elaborated on his views on monetary policy during an interview with Bloomberg Television. He pointed out:

"The unemployment rate may have risen to levels beyond what people expected. Therefore, the data we are receiving should prompt people to shift towards a dovish (policy) direction."

Since joining the Federal Reserve Board in September this year, Miran has advocated for a larger 50 basis point rate cut at FOMC meetings. However, he acknowledged that after the Fed has already cut rates by 75 basis points, the necessity of a 50 basis point cut at the next meeting has diminished. He said:

"You would enter an area where you can start to fine-tune rather than make large cuts. I do not know if we have reached that stage or if we still need a few more cuts to get there."

Miran also defended his views on inflation, stating that there has been a significant upward bias in CPI throughout the year, and that housing CPI has been somewhat distorted due to the government shutdown. He indicated that the public's failure to update their views reflects a lack of institutional credibility.

Last Monday, Miran issued a warning that failing to ease in a timely manner would threaten the economy, reiterating that the Fed's policy stance imposes unnecessary constraints on the economy, and that after excluding "phantom inflation," the "underlying" inflation level is close to the Fed's target. He warned that maintaining unnecessary tight policies would lead to unemployment.

At that time, Miran stated that after excluding housing services and statistical distortions, underlying inflation is running at a rate below 2.3%, within the noise range of the 2% target. He pointed out that housing inflation reflects supply and demand imbalances from two to four years ago, rather than the current situation. Some inflation-driving factors, such as management fees based on current high asset prices, reflect statistical anomalies rather than actual consumer price experiences This year, Trump has repeatedly criticized Federal Reserve Chairman Jerome Powell for the slow pace of interest rate cuts and called for significant rate reductions. Milan continued to question Powell this past Monday. He stated that he had to praise Powell for his efforts on interest rate cuts, but also said that "the Federal Reserve has not done a good enough job balancing prices and the labor market."

Term Extension Possible to Align with Trump's Personnel Arrangements

Like a week ago, Milan hinted again this past Monday that he might "overstay" his term as a board member next year. He indicated that if no one is confirmed for appointment before January 31, he expects to remain on the Federal Reserve Board.

Last Monday, he mentioned that after the board member's term expires at the end of January next year, he might continue to stay at the Federal Reserve until a new board member is confirmed to take over his position.

According to the laws governing the Federal Reserve, this practice is permitted. Since Federal Reserve Chairman Powell has not indicated whether he will resign from the board after his term expires in May next year, it is expected that Trump will use Milan's position to arrange for his nominated candidate for Federal Reserve Chairman to enter the board.

At the FOMC meeting on December 10, Milan again voted against the decision, as he advocated for a 50 basis point cut instead of 25 basis points. This was the third time since Milan took office as a board member that he held a dissenting opinion at an FOMC meeting.

Other Officials More Cautious, Next Year's Voter Hamak Advocates Pausing Rate Cuts

A blog published last Sunday showed that Cleveland Federal Reserve President Hamak stated in an interview last Thursday that the Federal Reserve's monetary policy is currently in a favorable position to pause rate cuts and assess the impact of the 75 basis points cut already made this year on the economy. Hamak said:

"My basic expectation is that we can stay here for a while until we get clearer evidence that inflation is returning to target levels, or that labor market weakness is more evident."

She emphasized, "I am very focused on ensuring that we can bring inflation back to target levels. This is one of our top priorities, and it is important to accomplish this task."

Hamak stated that she would not place too much emphasis on any single economic report, as the latest inflation data contains "noise" due to the lack of sampling during the government shutdown.

New York Federal Reserve President Williams stated last Monday that after the decision to cut rates at the FOMC meeting on December 9-10, the Federal Reserve's monetary policy is prepared for next year. He pointed out that with rising employment risks and reduced inflation risks, the Federal Reserve has shifted its policy stance from moderately restrictive to neutral.

At that time, Williams stated that monetary policy has now been adjusted to address either key risk to the Federal Reserve's main goals—excessive inflation or a weak labor market. He said, "We lowered interest rates this year based on data and outlook, and I believe this allows us to balance these two competing risks well."

Boston Federal Reserve President Collins posted on social media LinkedIn last Monday that she supported the 25 basis point rate cut at the December FOMC meeting, but it was a "difficult decision." Collins wrote, "Inflation has remained high for the past five years, and I still worry that inflation may persist." Last Wednesday, Governor Waller stated that given the weakening labor market, the Federal Reserve still has room to cut interest rates and can adopt a "steady and gradual" approach to bring the policy rate down to neutral levels. However, he emphasized that based on the current economic outlook, "there is no need to rush to cut rates," and the Federal Reserve can proceed at a moderate pace without taking drastic actions.

The Federal Open Market Committee (FOMC) of the Federal Reserve decided to cut rates by 25 basis points for the third consecutive time this month, but this decision faced three dissenting votes from FOMC members for the first time since 2019, revealing significant divisions within the decision-making body.

The divergence among Fed officials regarding the future path of interest rates mainly stems from some policymakers being more concerned about the cooling labor market, while others believe the Federal Reserve should prioritize controlling inflation above target. The rate forecasts released after the meeting indicate that most officials expect only one more rate cut next year, with six officials leaning towards keeping rates unchanged