Milan Warns the Federal Reserve: Risk of Recession Without Rate Cuts
Milan, a Federal Reserve governor appointed by President Trump, recently warned in an interview that if the Fed does not continue cutting rates next year, the U.S. economy could face a recession risk. He noted that the rise in unemployment has surpassed expectations, and these economic indicators should prompt the Fed to adopt a dovish stance and continue cutting rates to address possible economic downturn pressures.
Milan emphasized that if the Fed does not implement corresponding rate cuts, the risk of recession will become increasingly severe. He believes the rise in unemployment is a crucial indicator that the Fed must address, prompting necessary adjustments in monetary policy.
Internal Divisions on Fed Policy
Milan’s statement stands in stark contrast to the position of other recent Fed officials. Last week, Loretta Mester, the president of the Cleveland Fed, who will hold a voting right on the FOMC next year, stated in an interview that her base case is to pause rate cuts and assess the impact of the 75 basis points cuts already made this year on the economy.
Meanwhile, John Williams, president of the New York Fed, Eric Rosengren, president of the Boston Fed, and Governor Christopher Waller have also expressed cautious attitudes toward the pace of rate cuts. Williams pointed out that the current Fed monetary policy is at a neutral level, capable of addressing inflation and labor market risks.
Despite this, Milan continues to advocate for further rate cuts to avoid further economic deterioration. He acknowledges that even after a 75 basis point cut, further reductions could still be necessary, although he does not believe that an additional 50 basis point cut is still required.
Milan's View on Rate Cuts
Since joining the Federal Reserve Board in September, Milan has consistently advocated for more aggressive rate cuts. He argues that while the current rate reductions have been subdued, the risk of recession cannot be ignored without further cuts. He believes that underlying inflation levels are close to the Fed's target, thus negating the need for overly tight monetary policy.
Milan also mentioned that inflation distortions in the housing market have skewed overall CPI data, suggesting that the actual inflation pressure faced by consumers is not as severe. He stressed the importance of eliminating this "statistical noise" to accurately assess inflation and the economic situation.
Trump and Federal Reserve Policy
Trump has repeatedly criticized Fed Chairman Powell for not cutting rates promptly and has called for substantial rate cuts. Milan’s stance aligns with Trump’s, both viewing that there is a delay in the Fed's execution of monetary policy, inadequately addressing the risks of economic downturn.
Milan acknowledged Powell’s efforts in rate reductions but criticized the Fed for insufficiently balancing price and labor market objectives. He warned that failure to adopt appropriate accommodative policies might lead to greater economic challenges.
Milan's Term and Trump's Appointments
Milan also hinted that if no new governor is confirmed by January 31, he will remain on the Fed board until a new appointment is approved. This practice is permitted by relevant laws. Trump may leverage Milan’s position to appoint his nominated Fed Chairman into the board.
During the December FOMC meeting, Milan voted against, advocating for a 50 basis point cut rather than 25 basis points, highlighting the deep internal divisions on monetary policy within the Fed.
The Future Direction of Fed Policy
Looking ahead, as the U.S. economic landscape evolves, the Fed’s monetary policy will remain a focal point for market attention. The divergence in opinions between Milan and other officials could influence the Fed’s future policy direction. With a weakening labor market and receding inflation, whether to continue cutting rates or maintain stable rates will be pivotal in future economic decisions.
