Ahead of the Fed’s September meeting, Stephen Miran, a former Federal Reserve governor, said a rate hike right now would be a mistake. He argued that recent inflation data are distorted, not genuinely elevated.
Speaking on CNBC’s Squawk Box, Miran said the Fed’s preferred gauge is the Personal Consumption Expenditures (PCE) index. He said it has broken from its usual link to the Consumer Price Index (CPI) by about a percentage point.
Portfolio Fees Distort the Inflation Picture
Miran said core CPI is running near 2.5%, a historically normal level. He said the usual 40-basis-point CPI-to-PCE gap would put core PCE near 2.1%.
Core PCE instead rose 0.2% in July. It held at 3.3% year over year, matching June’s pace. Miran called that inversion mostly measurement error.
He attributed nearly 70 basis points of the gap to two factors. Portfolio management fees rise mechanically as stock prices climb.
Software price increases, he said, wrongly count AI upgrades as inflation instead of quality gains.
Miran said the Bureau of Economic Analysis (BEA) plans to revise its methodology a little more than a month from now, a timeline that lines up with separate reports pointing to a late-September overhaul. He expects the change to pull core PCE lower.
The Federal Reserve Act gives the Fed two goals, maximum employment and stable prices, Miran said. He said raising rates to fight overstated inflation risks unnecessary job losses.
He said the Fed held rates in June and July as inflation data 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 Independence and the Rate Hike Path Ahead
Miran discussed Fed Chair Kevin Warsh’s first Jackson Hole keynote, set for this week. He said the Fed should stick to its employment and price mandates rather than weigh in on fiscal policy.
The Treasury’s bond buyback plan adds purchases at the long end of the yield curve. Miran said more liquidity sharpens market signals rather than distorting them, pushing back on a criticism of the program that he said he has heard elsewhere.
Miran said policy set today should target inflation in late 2027. Rate changes take 12 to 18 months to reach the economy, he said.
He does not expect current distortions to persist that long.
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