Federal Reserve Governor Stephen Miran spoke at the Nomura Research Forum. He noted that investments in AI could raise the neutral interest rate. He also pointed out that recent policy changes, especially regarding immigration, have quickly affected this rate. Currently, the Federal Reserve’s policy is stricter than it seems because the neutral rate has dropped. Miran differs from his colleagues mainly in when he thinks interest rates should be cut, rather than what the final goals are.

Optimism About Inflation

Miran feels positive about inflation because he expects housing costs to decrease soon, leading to lower service costs. He thinks major shocks, like immigration, have a greater impact on policy than small, gradual changes. Data suggests that tariffs are not behind current inflation. Prices of key imported goods haven’t risen like those of other products. U.S. goods inflation is in line with rates seen globally. The US Dollar (USD) remains the most traded currency in the world, making up over 88% of global foreign exchange transactions, which averaged $6.6 trillion each day in 2022. When the Fed engages in quantitative easing, the USD tends to weaken, while quantitative tightening usually strengthens it. A significant signal from Miran indicates that the Fed’s current policy is already quite tight due to the likely drop in the neutral interest rate. This might mean the Fed could cut interest rates sooner than the market anticipates, driven by a positive outlook on inflation, especially from lower housing costs.

Implications for the US Dollar

Miran’s views are supported by recent data. The September 2025 Consumer Price Index showed shelter costs rising only 3.5% year-over-year, the slowest growth since early 2023. This hints at a potential drop in service inflation. The August 2025 headline PCE inflation at 2.4% shows a trend toward the Fed’s 2% target. From a trading perspective, there’s an opportunity here. Currently, fed funds futures suggest only a 20% chance of a rate cut by the December 2025 meeting. A dovish surprise could boost fixed-income derivatives, making long positions in SOFR or Treasury futures a good choice. Miran’s comments about possibly moving more quickly than expected heighten the chances of a significant market adjustment in the near future. This outlook also directly affects the US Dollar, which has remained strong over the past year. If the Fed eases more rapidly than expected, it could likely weaken the dollar index (DXY), which has been around 106.00. Traders might want to consider options strategies that benefit from a weaker dollar, like buying puts on the USD against other major currencies. We should closely monitor upcoming data, especially about housing. This entire outlook could change if inflation data for October and November 2025 exceeds expectations, forcing a reassessment of this dovish view. The tightening cycle from 2022 to 2023 taught us how quickly the Fed responds to persistent inflation. Create your live VT Markets account and start trading now.

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