The Miran dot

President Donald Trump appointed Stephen Miran to a position on the FOMC following former Governor Adriana Kugler's resignation in early August.

Less than a week after being appointed to the Federal Reserve, Governor Miran outlined the reasons why he thinks the central bank's benchmark interest rate is far too high and should be lowered aggressively. Mr. Miran is a labor economist on steroids and believes the current Fed Fund Rate (FFR) is far too restrictive and could lead to massive layoffs. This is why he said "…leaving policy restrictive by such a large degree brings significant risks for the Fed's employment mandate." He also indicated that current monetary policy is significantly more restrictive than the prevailing mindset among his fellow policymakers. He went on to add this gem of a quote last week, "…monetary policy is well into restrictive territory, leaving short-term interest rates roughly two percentage points too tight risks unnecessary layoffs and higher unemployment."

At the September FOMC meeting last week, the vote was 11-1 to lower the rate by a quarter percentage point. Miran was the sole dissenter, opting for a half-point cut and placing his individual dot on the committee's dot plot of expectations in a position that implied another 125 bps of rate reductions this year alone.

It is worth noting that the latest economic projections released by the Fed this month indicate that policymakers still expect inflation to end this year at 3%, which is well above the central bank's 2% target. In fact, it has been above the 2% target for the past 55 months. But that does not seem to matter to Messrs. Miran and Powell nor to the rest of the FOMC. The only dissent coming from these maniac money printers came from someone who thought the Fed was not being aggressive enough in its efforts to dilute the dollar. No one thought it prudent to raise rates, given inflation is still well above target. Nobody even thought that holding rates stable was the right thing to do.

Mr. Trump has many good instincts, but he is completely missing the mark when it comes to protecting the purchasing power of the USD. To this end, he is firmly committed to firing Mr. "too late" Powell and to filling the Fed with individuals who seek to expand the process of falsifying interest rates and to accelerate the pace of money printing towards the goal of creating the best economy the planet earth has ever seen. But, to best create the conditions for an economy running at full potential, we need stable prices and a stable currency, not one based on asset bubbles, debt, and inflation.

To further his pursuits, Trump has requested an emergency order from the Supreme Court to remove Lisa Cook from the Fed's Board of Governors. No president has fired a sitting Fed governor in the Federal Reserve's 112-year history. The President sought to fire Cook on August 25th, but a federal judge ruled that the removal was probably illegal and reinstated her to the Fed's board. Cook has been accused of mortgage fraud because she appeared to claim two properties as primary residences. Therefore, Trump may indeed be fully justified in removing Ms. Cook. However, the main point is not whether she belongs on the Fed. The issue is that Trump wants her gone because he is a Fed activist looking to fill the FOMC with people who are most likely to slash interest rates back towards ZIRP and embrace QE.

It is not as if the Fed is currently comprised of hard money individuals. In fact, Fed Chair Jerome Powell will already go down as the biggest money printer in Fed history. He has expanded the balance sheet by $4.5 trillion during his tenure. And, even though he has reduced that level from its peak in 2022, the amount of assets purchased and held by the Fed is still $2 trillion greater than when he first assumed his role as Chair.

To underscore this central bank charade, we need to highlight the Q&A session of the September FOMC meeting. Bloomberg's economic reporter, Mike McKee, pointed out to Mr. Powell that the Fed has habitually forecast in its Summary of Economic Projections (SEP) that inflation would return to the 2% level within the next two years. However, it has missed this target for the past four and a half years. And it has again forecast it would return to 2% in two years at this September's SEP. Mr. McKee inquired if the 2% target is really achievable, and does it present any credibility problems for the Fed and Mr. Powell if they always tell people they are going to get inflation down to 2% but can never reach that goal.

Powell answered the question by saying this incoherent legalese blather, stating in summary that nobody really knows where the economy is going a few years out, and making predictions is literally how we put those projections together; that is all that prediction is.

But despite inflation running hot for many years, the Fed has decided to embark on another rate-cutting cycle. The only dissension on the Fed is over the degree to which they want to cut rates. Does anyone else find it peculiar how Mr. Powell is now suddenly convinced that tariffs will be just a one-time increase in prices and will not lead to sustained inflation? Until the September FOMC, he repeatedly claimed it could not be known how the tariffs would affect inflation.

In any case, here is the salient point: The Fed is full of labor market economists who will be fighting a labor market ghost that cannot be spooked by a lower FFR. Lowering the interest rates on the inter-bank lending rate will not boost the job market because it will not increase immigration rates, nor will it halt the process of AI eliminating jobs as it increases productivity.

President Trump is slowly filling the Fed with individuals who have a deep conviction that interest rates are far too high. This process will reach a crescendo next spring when Powell is replaced with a Fed Chair who has the proclivity to print money to a degree that would make the current Chair blush. I think Mr. Miran is making a solid campaign to become the next Fed Chair by demonstrating his willingness to take bold steps right now. His derisible dot plots will then become reality.

In the short term, Wall Street will love the extra juice that comes from money printing and the reduced competition for stocks coming from money markets. The result should be to push stock prices further into the thermosphere of valuations. But in the longer term, the credit markets will begin to falter under the weight of inflation. Investors need to have a process that enables them to identify the difference between a seemingly innocuous rate of inflation that boosts equities, and one that is so destabilizing it engenders a credit and equity market bust.