Post Content
A rare and politically charged split is opening inside the Federal Reserve as policymakers look toward 2026.
When it comes to interest-rate cuts this year, there’s one Fed official who wants the divisive central bank to go big — really, really big.
Potential hiccup: He may be gone by the end of the month.
Federal Governor Stephen Miran told Fox Business Network on Jan. 6 that the Federal Open Market Committee will need to cut interest rates by more than a percentage point in 2026.
That’s not only 100 basis points, but also one massive drop to the cost of short-term borrowing for investors, businesses, and consumers.
Miran mirrors President Donald Trump, arguing that monetary policy is restraining the U.S. economy.
“I think it’s very difficult to argue that policy is about neutral. I think policy is clearly restrictive and holding the economy back,” Miran said.
Economists define the neutral rate, or r-star (r*), as the interest rate that keeps the economy at full employment while maintaining stable inflation around the Fed’s 2% target.
When rates hit this level, monetary policy is neither pressing the gas pedal nor pumping the brakes on economic activity.
It’s important to note that the neutral rate isn’t a fixed rate. It fluctuates according to productivity growth, demographic trends, and global capital flows.
Most Fed officials currently estimate that the long-run neutral rate falls between 2.5% and 3% but roughly 4.5% to 5% when accounting for inflation.
The current Federal Funds Rate is 3.50% to 3.75%.
Related: Interest-rate cuts may fade for 2026 borrowers: Fed official
The FOMC, the central bank’s policymaking panel, cut the funds rate three times for a total of 0.75 points (75 basis points) in 2025.
After the December rate cut, Fed Chair Jerome Powell said the lowering of rates brought monetary policy “within a broad range of neutral.”
Looking ahead to 2026, the Fed’s own median projection or “dot plot” suggested there would be only one additional 25 basis points cut. This would move the rate to around 3.25% to 3.50% by year end.
Market expectations are slightly more dovish, calling for two rate cuts, which would push rates closer to 3%.
President Trump has spent the past year blasting Powell and the FOMC for not lowering rates to around 1%.
The White House maintains this will stimulate the stagnant housing market and reduce the amount of interest on the nation’s debt, which currently hovers between approximately $38.4 trillion and $38.5 trillion.
The next FOMC meeting is Jan. 27-28, and CME Group’s widely watched FedWatch Tool estimates a 16.1% chance of a quarter-percentage point cut.
Miran has been seeking multiple jumbo rate cuts since September, when he went on leave from his post as chair of the White House Council of Economic Advisers to fill a Fed governor term that ends this month.
The controversial appointment had global central bank watchers clutching their pearls over concern for the Fed’s independence.
Miran’s temporary term expires Jan. 31, but he has said he will remain at the Fed until the president names a permanent replacement.
But Miran told Fox he is not interested in replacing Powell, whose term as chair expires at the end of May.
The White House has conducted an extremely public search to replace Powell, with the president saying the final candidate to lead the independent central bank must show “loyalty” to Trump’s policy demands.
Miran said underlying inflation is basically at the Fed’s 2% target and he expects the economy to grow robustly this year, arguing that a failure by the Fed to lower short-term borrowing costs could upend that outlook.
“The danger in cutting that quickly is that the Fed would be acting on a very narrow interpretation of inflation progress,” said Sarah House, senior economist at Wells Fargo. “Core price pressures have eased but they’re not convincingly at target, and the labor market hasn’t weakened enough to justify jumbo cuts unless growth deteriorates sharply.”
Richmond Fed President Tom Barkin said on Jan. 6 that the current level of rates is “within the range of its estimates of neutral,” Bloomberg reported, referring to the “dot plot” projections published in December.
And as Bloomberg also noted, Minneapolis Fed chief Neel Kashkari on Jan. 5 shared his guess that “we’re pretty close to neutral right now.”
Philadelphia Fed President Anna Paulson, who, like Kashkari, is a voting member of the rate-setting FOMC this year, said on Jan. 3 that if her economic expectations are realized, “some modest further adjustments to the funds rate would likely be appropriate later in the year,” Reuters reported.
Related: Next Fed chair faces ‘no-win’ test as White House pushes rate cuts
This story was originally published by TheStreet on Jan 6, 2026, where it first appeared in the Fed section. Add TheStreet as a Preferred Source by clicking here.
Terms and Privacy Policy