Federal Reserve Board member Stephan Miran said monetary policy has tightened without the Fed actively doing more. He said the central bank could cut interest rates and still support economic growth. He said the Federal Reserve is one of the biggest risks to growth, and that policy may be tighter than many people think. He also said that inflation—after adjusting for measurement biases—is very close to the Fed’s target and that prices are broadly stable.

Implications For Policy And The Labor Market

Miran said there is some slack in the labour market and that monetary policy has room to help. He said it makes sense to support the labour market with easier policy, and he estimates the natural rate of unemployment at 4%. He said he is not worried about inflation unless rents rise sharply. He also said the impact of tariffs has not shown up in inflation data. He said the US fiscal outlook is improving and that US growth is outperforming, which supports the US dollar’s reserve-currency status. At the time of writing, the US Dollar Index (DXY) was around 97.00, up 0.10% on the day. Because monetary policy appears to have tightened passively, we believe the Federal Reserve has room to lower interest rates. The latest core Consumer Price Index (CPI) reading for January 2026 was 2.1% year over year, which supports the view that inflation is very close to the Fed’s target. That suggests the risk of an inflation spiral is low and gives policymakers more flexibility.

Trade Positioning And Market Impact

These comments could shift expectations for the Fed’s next move and make rate cuts in the second quarter more likely. Derivative traders may want to position for a more dovish path using Secured Overnight Financing Rate (SOFR) futures, with at least one or two cuts priced in before the end of the summer. Buying call options on Treasury note futures (ZN) may also be a practical way to benefit from falling yields. For equity markets, this outlook is supportive because lower rates raise the value of future earnings. We may consider buying call spreads on the S&P 500 (SPX) or Nasdaq 100 (NDX) to take advantage of a potential rally in growth-focused sectors. This would reduce concerns about a Fed-driven slowdown that has been weighing on stocks. Despite the recent strength in the U.S. Dollar Index, a clear shift toward easier policy would likely weaken the currency. Q4 2025 GDP growth of 2.5% highlights US outperformance, but interest-rate differences still drive currency markets. We could consider buying puts on U.S. Dollar Index futures or buying calls on EUR/USD in anticipation of this change. Labour market data also supports this view. The January unemployment rate rose slightly to 4.2%, and annual wage growth slowed to 3.5%. This suggests there is slack in the market, which gives the Fed room to focus on employment without triggering inflation. This is a meaningful change from the tighter labour market seen through much of 2024. A similar pattern appeared in early 2019. The Fed shifted from a tightening stance to an easing stance, and risk assets rallied as markets stopped pricing in hikes and began pricing in cuts. Miran’s comments suggest a similar shift could be developing now. Create your live VT Markets account and start trading now.

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