Editor
The ongoing trade war with China has just given the biggest advocates for Fed rate cuts a powerful new tool.
Federal Reserve Governor Stephen Miran, who is already one of the most outspoken doves at the central bank, stated on Wednesday that the recent spike in U.S.-China trade tensions has made a bold policy shift “even more crucial” than it was just a week ago. While speaking at the CNBC “Invest in America Forum” in Washington, Miran pointed out that the renewed conflict—sparked by Beijing’s threat to limit rare earth exports and President Donald Trump’s swift reaction—has added a new layer of risk to an already shaky economic forecast.
That kind of straightforward evaluation is certainly turning heads on Wall Street.
The Return of the ‘Tail Risk’
For months, the market had been riding on the optimistic belief that, despite the chaotic global trade situation, the worst was behind us. But Miran, who just stepped into his role a month ago, now claims that belief has been completely upended.
“I thought the uncertainty had calmed down, which made me feel more positive about certain aspects of growth,” Miran shared with CNBC’s Sara Eisen. “But now, it seems like we’re back to square one because the Chinese are backing out of agreements that were already in place.”
He pointed out that we’re facing the unexpected resurgence of a “tail risk”: a rare but potentially devastating event that could completely disrupt the U.S. economy. The stakes are especially high when it comes to rare earth materials, which are essential for everything from fighter jets to smartphones. China’s decision to leverage its control over this market isn’t just a business issue; it’s a strategic challenge.
Dr. Helena Vance, Chief Economist at Meridian Capital, highlighted the political implications of Miran’s remarks. “Miran is sharp. He’s taking a very real threat—the potential for supply chain disruptions—and using it to advance his policy goals,” she noted in a message to clients. “Whether a 100-basis-point cut is the right move or not, the trade tensions certainly lend significant weight to his argument.”
The Case for an ‘Aggressive’ Pivot
From a policy perspective, the ongoing trade drama only strengthens Miran’s belief that the Federal Open Market Committee (FOMC) needs to take decisive action. He’s currently pushing for an additional 1.25 percentage points in rate cuts, on top of the quarter-point reduction the Fed approved back in September. Many on the committee might see this as too aggressive, even bordering on panic.
But for Miran, it’s all about protecting the economy.
At the heart of his argument is what he calls a “restrictive” monetary policy. Imagine trying to speed up a car while your foot is still lightly pressing the brake. When the policy is restrictive—meaning interest rates are effectively slowing down growth—the economy becomes quite fragile.
“If you hit the economy with a shock when policy is very restrictive, it will respond differently than if the policy were less tight,” Miran explained. He added, quite frankly: “I believe it’s even more crucial now than it was a week ago for us to shift quickly to a more neutral stance.” A neutral stance refers to the ideal interest rate that neither boosts nor hinders economic activity.
Robert Chen, a Senior Fellow at the Institute for Global Economics, pointed out that Miran’s perspective isn’t entirely out of left field. “The restrictive stance he talks about is the main concern for the market,” Chen noted. “When geopolitical risks—whether from trade or other sources—rise, the Fed’s ability to soften the impact is what really counts. If rates are already too high, they won’t be able to respond effectively.”
The October Meeting Conundrum
The FOMC, where Miran has a vote until his term wraps up in January, is set to gather again on October 28-29. Just before the recent tensions with China flared up, financial markets were already anticipating a near-certain quarter-point rate cut.
Now, Miran’s remarks have added a layer of uncertainty to how significant that cut might be. While most experienced analysts still see a sudden 50-basis-point reduction as unlikely, his call for a swift adjustment puts extra pressure on Fed Chair Jerome Powell to explain any cautious, incremental approach. Miran essentially argues that the Fed shouldn’t wait for the storm to arrive before seeking shelter.
So, the real question for the FOMC isn’t whether they should cut rates, but rather how deep those cuts need to be to counter the very real threat of a serious, trade-induced recession. The pressure is building for the central bank to make a bold move toward that “neutral” rate—and do it soon.
