Federal Reserve Governor Stephen I. Miran said that key parts of current inflation readings are distorted by backward-looking housing measures and statistical “imputed” components, raising the risk that policymakers keep interest rates higher than necessary and trigger avoidable job losses.
In remarks delivered at Columbia University’s School of International and Public Affairs in New York, Miran outlined an inflation outlook that downplays elevated shelter inflation and questions the weight policymakers should place on specific nonmarket price measures, particularly portfolio management services.
His comments come amid ongoing debate within the Federal Reserve over how quickly interest rates should move toward a neutral level, following a series of recent rate cuts.
Shelter inflation reflects past imbalances, not current conditions
Miran said that shelter inflation remains a significant concern for households and a major driver of the Personal Consumption Expenditures price index, the Federal Reserve’s preferred inflation gauge. However, he emphasized that official shelter measures inherently lag real-time market conditions because rents typically reset only when tenants move or renew leases.
According to Miran, this lag has now primarily played out. Broader rent measures have caught up with new-tenant rent trends, while the PCE shelter index has effectively overshot them. As a result, he expects shelter inflation to decline more quickly in the coming quarters.
He added that two additional forces reinforce this outlook: a negative population shock associated with a reversal in net migration, and an elevated share of shelter spending relative to total consumption, which has historically reverted to its long-term average.
Services inflation driven by wages, not imputed prices
Turning to core nonhousing services, Miran said he is not concerned about inflation in this category, which includes childcare, education, medical care, and entertainment. He stressed that wages are the primary driver of services inflation. He noted that labor market conditions have been gradually loosening, with unemployment trending higher and wage growth moderating over the past two years.
Miran was sharply critical of service components that rely on imputed prices rather than observed transactions. He highlighted portfolio management services as a prime example, arguing that current inflation measures treat rising asset-management revenues as price increases when they often reflect larger asset balances rather than higher costs or tighter supply.
He contrasted those measures with industry data showing long-term fee compression in asset management. In his view, this discrepancy creates “phantom inflation” that carries no meaningful signal about underlying economic conditions and should not influence monetary policy decisions.
Goods inflation is not clearly driven by tariffs
Core goods inflation has risen over the past year, and Miran acknowledged that tariffs are frequently cited as the primary explanation. He said the timing across different inflation measures does not clearly support that claim and argued that economic theory and empirical evidence suggest exporters often bear most of the long-run burden of tariffs.
Miran also noted that U.S. goods inflation does not stand out relative to other advanced economies, which weakens the case that domestic tariff policy is the primary driver. Even if tariffs temporarily raise prices, he said, central banks typically look through one-time price level changes rather than treat them as persistent inflation driven by excess demand.
That said, Miran acknowledged uncertainty about the current drivers of higher goods inflation. Possible explanations, he said, include normal volatility, lingering post-pandemic supply chain adjustments, or a more durable shift linked to global trade restructuring and supply-chain resilience efforts.
Policy should not be set using outdated inflation signals
Miran’s core policy message was that measured inflation overstates current supply-and-demand pressures. Shelter inflation reflects housing market imbalances from earlier years, whereas some services inflation stems from statistical construction rather than real price behavior.
He argued that market-based inflation measures provide a clearer signal. By those metrics, underlying inflation appears to be close to the Federal Reserve’s 2 percent target, particularly once shelter and imputed components are excluded.
Given the long lags in monetary policy, Miran warned against calibrating today’s interest rates to inflation dynamics from 2022 rather than to the economic conditions likely to prevail in the coming years. He cautioned that labor market deterioration can occur rapidly and be difficult to reverse, supporting his call for a faster pace of policy easing.
Recessions, Miran said, are inevitable, but an appropriate calibration of monetary policy can help delay them and reduce their severity.
