When asked in a CNBC interview about his dissent at his first FOMC meeting, in which he voted for a 50 basis point cut when the rest of the board voted for 25, Stephen Miran said:
I’m clearly in the minority in not being concerned about inflation from tariffs...There will always be relative price changes, but whether or not it’s inflation that’s macroeconomically significant of the type that monetary policy should respond to is a different question.
When explaining the reason for his decision, Miran said he doesn’t “see any material inflation from tariffs.”
Mr. Miran is absolutely correct that, in most circumstances, tariffs affect relative prices and are not inflationary. That is certainly the case when tariffs are applied selectively, although there is some debate about their impact when tariffs are applied universally. If the Fed responds to slower nominal growth from universal tariffs, the impact on inflation may be somewhat less than benign.
If monetary policy is used to maintain a desired level of nominal growth - and monetary policy really can't affect real growth variables except maybe in the very short term - then the breakdown of NGDP between real growth and inflation is determined by other, non-monetary policies. In this case, the other policies that are undergoing the biggest change are immigration and trade policy. If those policies make the economy less productive, less efficient - and they certainly do - then potential real GDP growth is degraded. Maintaining the same level of NGDP would produce higher inflation and lower real growth relative to what prevailed prior to the policy change.
The bigger problem with Mr. Miran's answer is that it reveals his true motives - defending President Trump's economic policies, which he helped construct. That would be fine if he was acting as head of the President's CEA but if he's acting as a governor of the Federal Reserve it will limit his ability to conduct monetary policy in a politically neutral fashion. It doesn't matter whether Trump exerts direct pressure on him or not.
It is true that the Fed board has had many political appointees in the past and will certainly have more in the future. But don't let anyone tell you that they are acting independently of their political leanings. In the case of Mr. Miran, he has made it pretty obvious and explicit that his job is still to be the main defender of Trump's economic policies.
