Former Fed Governor Miran Says Rate Hike Would Be Mistake Ahead of Meeting

Stephen Miran, a former Federal Reserve governor, stated that a rate hike before the Fed's September meeting would be a mistake, arguing that recent inflation data are distorted. He noted that the Fed's preferred measure, the Personal Consumption Expenditures (PCE) index, has diverged from its typical correlation with the Consumer Price Index (CPI) by about one percentage point. Miran highlighted that core CPI is around 2.5%, a historically normal level, suggesting that the usual 40-basis-point gap would place core PCE near 2.1%. Instead, core PCE rose 0.2% in July, maintaining a year-over-year rate of 3.3%, which Miran attributed to measurement errors. He identified nearly 70 basis points of the gap as resulting from portfolio management fees and miscounted software price increases related to AI upgrades. Miran anticipates a revision in the Bureau of Economic Analysis (BEA) methodology in late September, which he believes will lower core PCE. He emphasized that the Fed's dual mandate of maximum employment and stable prices should guide its decisions, warning that raising rates to combat overstated inflation could lead to unnecessary job losses. Miran also discussed the Treasury's bond buyback plan, asserting that it enhances market signals rather than distorting them. He believes that policy changes should focus on inflation projections for late 2027, as rate adjustments take 12 to 18 months to impact the economy.