Federal Reserve Governor Stephen Miran said Monday that he expects a rapid decline in housing-related inflation despite higher costs for other items. He also suggested interest rate cuts may be warranted even as overall inflation remains above the Fed’s 2% target.
In his speech at Columbia University, Miran noted that current shelter inflation readings reflect the supply-and-demand imbalances from 2022 rather than present economic conditions, a distinction he argued is crucial for setting monetary policy for 2027 and beyond.
Miran, who is President Donald Trump’s most recent appointee to the Federal Reserve Board of Governors, added that while housing costs make up a significant share of inflation indices, they lag real-time market conditions by months or years. His remarks came a day before another Trump-favored Fed Governor, Christopher Waller, offered a darker assessment of both housing and the economy more broadly.
At the most recent Fed meeting, Waller joined the majority of voting members in supporting a 25-basis point cut to the federal fund’s rate, while Miran voted in favor of a larger, 50-basis point decrease.
In his speech Monday, Miran pointed to data showing that market rents for new tenants surged as the economy recovered from the pandemic but have remained flat or declined over the past two years.
However, the personal consumption expenditures price index, the gold standard by which the Fed measures its inflation target, has only recently begun reflecting those lower market rent rates. Why? Because most tenants don’t see rent changes until it’s time to renew their leases.
He noted that separate rent indices have now caught up to or even overshot new-tenant rates, hinting that housing-related inflation may cool faster than many economists initially predicted.
“Two factors give me additional confidence: first, the negative population shock resulting from a reversal in net migration,” Miran said, adding, “and second, an elevated ratio of nominal shelter services consumption relative to overall consumption, which has historically been mean-reverting.”
Housing costs have been a sizable pain point for American families, with shelter accounting for the largest single expense for most households. The PCE shelter index remained stubbornly high even as other pandemic-era price pressures eased, moving headline inflation readings up.
Miran’s rosy housing outlook comes as he downplayed other inflation concerns, including jumps in core goods prices as likely temporary. He argued they don’t clearly stem from tariff policies, maintaining that exporters rather than U.S. consumers will bear the brunt of most tariff costs.
However, many economists and analysts disagree. According to the Tax Foundation, tariffs have hiked overall retail prices by 4.9 percentage points relative to their pre-tariff levels—a number that’s expected to increase if the Supreme Court upholds the tariffs enacted by the International Emergency Economic Powers Act.
Going further in his remarks, Miran criticized how certain service prices are calculated, including portfolio management fees that he contends raise the index. He noted actual industry data shows fee compression of 6% in 2024, while PCE recorded a 20% increase.
“Here we are, keeping interest rates too high because of the phantom inflation of portfolio advisory fees,” Miran said. He added that the U.S. should focus on “market-based core inflation,” which excludes imputed prices and housing. By that measure, underlying inflation is running closer to 2.3%, right near the Fed’s target.
Miran hinted that the Fed may cut rates more aggressively if shelter inflation continues on its current path.
For potential homebuyers, more aggressive Fed rate cuts could lead to lower mortgage rates that spur home sales, but potentially higher home prices if buying demand spikes. Additionally, mortgage rates don’t always follow the Fed’s rate decisions and more closely track longer-term bonds, such as the 10-year Treasury.
However, if rent growth stalls as Miran predicts, it would strengthen the case for faster rate cuts, while any surge in housing demand could delay expected disinflation and keep rates elevated. He argues that keeping policy unnecessarily tight risks harming the labor market.
“Recessions are an inevitable part of the business cycle, and at some point, we will suffer one,” Miran said. “We should strive to ensure that point is as far in the future and as shallow as possible by appropriately calibrating monetary policy.”
