FILE PHOTO: The Federal Reserve Building during the Federal Open Market Committee meeting on interest rate policy at the Federal Reserve in Washington, D.C., U.S., September 16, 2025. REUTERS/Aaron Schwartz/File Photo

By Howard Schneider and Michael S. Derby

WASHINGTON (Reuters) -New Federal Reserve Governor Stephen Miran said on Monday that the Fed is misreading how tight it has set monetary policy and will put the job market at risk without aggressive rate cuts, a view countered in remarks by three of his colleagues who feel the central bank needs to remain cautious about inflation.

Miran, a week into his new job on leave from the Trump administration, told the Economic Club of New York he feels the central bank has failed to grasp how the administration's immigration, tax, and regulatory changes are reshaping the economy and likely driving down the so-called "neutral" rate of interest that neither encourages nor discourages investment and spending.

The result is that the current benchmark interest rate of 4% to 4.25% is far more restrictive than Fed officials realize, and should be cut by perhaps two percentage points in a rapid easing that is in line with demands President Donald Trump has made of the Fed but out of step with even his most dovish colleagues.

"The upshot is that monetary policy is well into restrictive territory. Leaving short-term interest rates roughly two percentage points too tight risks unnecessary layoffs and higher unemployment," Miran said. "Insufficiently accounting for the strong downward pressure on the neutral rate resulting from changes in border and fiscal policies is leading some to believe policy is less restrictive than it actually is."

Miran last week dissented when the Fed cut the benchmark rate by a quarter of a percentage point, saying that a half-point cut was warranted, a step he said he is willing to repeat. He also penciled in half-point cuts at the Fed's next two meetings, a projection that he acknowledged "diverges from those of other FOMC members."

Miran's comments were in an address to expand on his dissent and low rate projections. Fed Chair Jerome Powell, who held a press conference after last Wednesday's policy meeting, will speak on the economic outlook on Tuesday.

MIRAN'S FED COLLEAGUES SEE MORE LIMITED ROOM TO EASE

St. Louis Fed President Alberto Musalem said he supported the quarter-point cut last week as a "precautionary move" to help keep the economy near full employment, but said the policy rate accounting for inflation may already be close to neutral.

"I believe there is limited room for easing further without policy becoming overly accommodative, and we should tread cautiously," said Musalem, a voter on Fed policy this year. "Monetary policy should continue to lean against persistence in above-target inflation...Overemphasizing the labor market...could do more harm than good."

Atlanta Fed President Raphael Bostic, in a Wall Street Journal interview, also said the focus needed to remain on ensuring inflation returns to the Fed's 2% target from a current level about a percentage point higher. The rate cut approved at last week's meeting may be the only one needed this year, with risks that he feels remain tilted towards persistently higher inflation and a related risk of rising inflation expectations.

"I am concerned about the inflation that has been too high for a long time. And for me, I think it’s important that we continue to signal the importance of that," Bostic said. Of a possible rate cut at the next meeting in October, "I today would not be...in favor of it," said Bostic, who is not a voter on rate policy this year.

Cleveland Fed president Beth Hammack, who also shares her policy views at Fed meetings but like Bostic is not among the five reserve bank presidents who vote this year under the Fed's rotating system, said she felt policy at this point was not that restrictive.

"I think we are only a short distance to neutral, and it worries me that if we remove that restriction from the economy, things can start overheating again," Hammack said in remarks that showed the divisions inside the Fed over whether interest rates will keep falling. "I think we should be very cautious in removing monetary policy restriction because I think it's important that we stay restrictive to bring inflation back down to target."

Fed officials at the median project two more quarter point rate cuts this year, with only Miran projecting an additional 75 basis point reduction beyond that.

MIRAN DISMISSES CONCERN OVER TARIFF-BASED INFLATION

Miran said his comments are based on his own analysis, and are not influenced by Trump's criticism of the Fed as "too late" to cut rates the president feels should have been far lower by now.

But they also show the heavy lift Miran will face in convincing his colleagues during a Fed term that, absent some unexpected development, expires in January.

Those who spoke on Monday included fellow economics PhDs Musalem and Bostic, and two officials, Hammack and Richmond Fed President Thomas Barkin, with long careers in financial markets and management.

None saw Fed policy as severely restrictive, with Musalem saying loose financial conditions are currently a reason to be cautious on rate cuts, and Barkin noting that low unemployment, rising wages, and high asset prices all continued to boost consumer spending.

"Consumers are spending nicely. Why wouldn't they?" Barkin said in comments during a virtual meeting with members of a local Maryland Chamber of Commerce. "Unemployment is low, real wages are increasing, and stock market valuations are healthy," he said.

The combination of near full employment and inflation still nearly a full percentage point above target has kept most Fed policymakers at least a bit cautious about declaring the price battle to be over.

But Miran said that view is backward looking.

Rates should be falling to keep pace with where the economy is heading. He called concern over tariff-driven inflation "unreasonable," and argued that, in the background, things like the deportation of immigrants would lead to less demand for housing and thus much less inflation in an important component of the main price indexes.

"I don’t want to imply more precision than I think is possible in economics. Assumptions and approximations abound," Miran said. "Nevertheless, I must stake out a position, and this is my best ballpark estimation."

(Reporting by Howard Schneider in Washington and Michael S. Derby in New York; Editing by Andrea Ricci)