Federal Reserve Governor Stephen Miran has called for more urgent interest rate cuts in response to US-China trade tensions, citing increased downside risks to the economic outlook. This development comes as China announced new restrictions on rare earth mineral exports, prompting a strong reaction from the United States.

Trade Tensions and Economic Risks

The escalation in US-China trade relations has created a new set of challenges for the U.S. economy:

• China implemented new restrictions on rare earth mineral exports
• President Trump threatened 100% tariffs on Chinese imports in response
• These actions have introduced fresh downside risks to the economic outlook

Federal Reserve's Stance

Governor Miran argues that these developments may necessitate a faster adjustment of monetary policy towards a more neutral stance:

• The Fed cut rates by 0.25 percentage points in a recent meeting
• Another rate cut is expected at the upcoming October 28-29 meeting
• The target range is anticipated to be 3.75%-4.00%

Miran's Position

Governor Miran has taken a strong stance on monetary policy:

• He previously advocated for a larger 0.50 percentage point cut
• He maintains that current monetary policy may be too restrictive
• Miran expresses less concern about near-term inflation, suggesting potential room for faster rate reductions

Current Economic Climate

Ongoing Diplomacy

Despite the heightened tensions, Treasury Secretary Scott Bessent noted that discussions between the US and China are ongoing. This suggests that diplomatic channels remain open, even as economic measures are being implemented by both sides.

The situation remains fluid, with potential implications for global trade, economic growth, and monetary policy. As these events unfold, the Federal Reserve's decisions on interest rates will be closely watched by markets and policymakers alike.

Federal Reserve Chair Jerome Powell has raised concerns about increasing risks to employment due to a significant slowdown in job creation. This development comes despite the unemployment rate remaining low through August, signaling a potential shift in the labor market dynamics.

Key Points from Powell's Statement

• Job Creation Slowdown: A sharp decline in payroll gains has been observed, partly attributed to reduced labor force growth.
• Factors Affecting Labor Force: Lower immigration and decreased participation rates are contributing to the slowdown.
• Economic Growth: Despite the softening labor market, overall economic growth appears to remain stable.

Federal Reserve's Response

In light of these developments, the Federal Reserve has taken several actions:

1. Interest Rate Cut: A quarter-point reduction in mid-September, marking the first cut this year.
2. Future Rate Cuts: Fed policymakers have indicated plans for an additional 50 basis points of cuts for the remainder of the year.
3. Upcoming Meetings: The remaining rate cuts are expected to be discussed in the October and December meetings.

Market Reaction and Expectations

• Futures traders are pricing in a high probability (over 95%) of additional half-point rate cuts this year.
• Powell suggested that the Fed may soon halt the reduction of its balance sheet size, which had expanded during the pandemic through Treasury and mortgage-backed securities purchases.

Implications for Fed Policy

Powell emphasized that the downside risks to employment have shifted the Fed's risk assessment. The central bank is now faced with the challenge of balancing its dual mandate of maximum employment and price stability.

This shift in the Federal Reserve's stance underscores the delicate balance required in monetary policy, especially in times of economic uncertainty. As the labor market shows signs of cooling, the Fed's actions in the coming months will be crucial in shaping the economic landscape.