Assessing the Path Forward for Inflation and Monetary Policy

Amid ongoing economic uncertainty, Federal Reserve Governor Stephen I. Miran provided a detailed assessment of the current inflation outlook, emphasizing the importance of understanding the components behind recent price movements and their implications for monetary policy decisions.

Miran opened by revisiting his previous assumptions about the persistence of inflation in core goods and nonhousing core services. He clarified that measured shelter inflation, which heavily influences official indices, has finally caught up with actual rent trends. The lag in reported shelter costs is described as an "after-echo" of past supply-demand imbalances rather than a reflection of today’s housing market, and Miran expects shelter inflation to decline more quickly moving forward as recent softness in new-tenant rents and demographic factors work through the data.

When discussing core nonhousing services, Miran noted that although inflation in these categories has remained somewhat elevated, it is primarily driven by labor costs and recent data indicates cooling wage growth and a loosening job market. He pointed out that some increases, such as a surge in measured portfolio management fees, are artifacts of the way statistics are constructed rather than true price pressures. Excluding such imputed or nonmarket inputs, Miran argued, reveals a much lower underlying inflation rate.

Turning to goods inflation, Miran questioned the dominant narrative that U.S. tariffs are to blame for recent price increases. Drawing on research into supply and demand elasticities, he suggested that the majority of tariff costs are borne by foreign exporters, not U.S. consumers, and that the observed uptick in goods prices is neither pronounced nor clearly linked to trade policy when compared internationally or across import-intensive categories. He entertained the possibility that broader forces such as global supply chain restructuring and increased focus on economic resilience could play a role, while also acknowledging uncertainty about what exactly is driving higher goods inflation at present.

On policy, Miran cautioned against keeping interest rates excessively tight in response to data distortions or the lingering effects of earlier inflation surges. Adjusting for shelter and nonmarket influences, he estimates underlying inflation to be close to the Fed’s traditional 2 percent target. With housing-driven disinflation expected to continue, he argued for a more neutral policy stance and warned that unnecessary policy restraint risks employment and broader economic stability.

This analysis highlights the complexity of today’s inflation dynamics and underscores the need for policy decisions grounded in forward-looking, carefully constructed measures rather than reacting to outdated or misleading signals—an approach that aims to support both price stability and sustained economic growth.