Fed “Dovish Chorus” Growing Louder! Governor Milan: Current Economic Conditions Require Substantial Rate Cuts
Stephen Milan, a Trump ally and Federal Reserve Governor, said on Tuesday that the U.S. economy “needs substantial rate cuts” and warned that current monetary policy is keeping borrowing costs too high, pushing up unemployment, and hindering economic growth.
In a program that day, he stated, “I think the economy needs substantial rate cuts to bring monetary policy toward neutral as quickly as possible. Monetary policy is currently restraining the economy. That is holding back growth. That is gradually pushing unemployment higher.”
“Given the economic outlook, I think that is inappropriate,” he continued. “So I believe rapid rate cuts are the right course.”
At present, considerable disagreement remains within the Fed about whether to cut rates further at the December meeting, owing to concerns over a softening labor market and persistent inflation. The Fed has cut rates twice consecutively in September and October this year, lowering the federal funds rate target range to 3.75%-4.00%.
Milan advocates continuing to cut rates in 50 bps increments and, citing recent employment data and low inflation risk, recommends an overall dovish stance.
“I think other members of the committee will agree with the labor market data we have recently received, and I hope that will lead them, like me, to conclude that continued rate cuts are appropriate. I think the data point to that,” he said, referring to the recently released better-than-expected September jobs report.
Milan went on to note, “Many people, if you look at their forecasts for where the economy is headed — what we call the ‘dot plot’ — will see that they expect us to move toward a neutral rate. The only question is how quickly we get there. I want to get there as soon as possible because I don’t see an inflation problem.”
“In my view, almost all of the inflation increase is illusory. It stems from supply-demand imbalances in the housing market… and from monetary policy lags,” he added.
On the other hand, Milan warned that current monetary policy is putting pressure on the U.S. labor force.
“We have to recognize that unemployment has been rising, and that is the result of overly restrictive monetary policy. Now I am worried that if we do not continue to lower rates at a reasonable pace, monetary policy will choke off all of this positive momentum before it really gets going, and we will not achieve the kind of recovery in the labor market that I think is appropriate,” he added.
Milan’s views appear consistent with remarks from other Fed officials over the past two days. San Francisco Fed President Mary Daly said on Monday that she supports a rate cut next month because she believes the risk of a sudden deterioration in the labor market is greater — and harder to control — than a sudden surge in inflation.
Although Daly has no vote this year, her views still warrant close attention because her monetary policy stance is generally aligned with Fed Chair Powell and she rarely expresses dissenting opinions.
In addition, Fed Governor Christopher Waller also sounded dovish on Monday, saying he favors a rate cut in December but that the subsequent policy path should be meeting-by-meeting. In terms of the Fed’s dual mandate, his biggest concern right now is the labor market.
Finally, Milan said the U.S. housing market needs broad relief and urged his central bank colleagues to “be forward-looking and set policy on a forward-looking basis.”
“We need to bring mortgage rates down. Some people think financial conditions are very easy because of the stock market, but housing is the really important factor in transmitting financial conditions to the economy. Mortgage and housing market financial conditions remain very tight. I believe as we lower rates, those numbers will come down,” he said.