Stablecoins Drive Fed Policy Shift: Miran Calls for Bold 50 bps Rate Reduction

Federal Reserve Governor Stephen Miran has stepped up his advocacy for a half-point interest rate reduction, stating that a cut of at least 25 basis points is the bare minimum needed to keep pace with shifting economic realities. Speaking in New York, Miran highlighted the growing rift among Fed policymakers as they consider the challenges of inflation, a cooling job market, and structural changes such as the increasing use of dollar-based stablecoins.

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Miran’s position builds on his earlier support for more substantial rate reductions, which he attributes to his belief that the "neutral" rate (r-star) is lower than most of his peers estimate. He now connects this view to the rapid growth in stablecoin demand, arguing that this trend could fundamentally lower borrowing costs.

Miran explained that as stablecoins drive up demand for U.S. Treasury bills and other highly liquid assets, the Fed’s key interest rate could fall by as much as 0.4 percentage points. He warned that not adjusting policy rates accordingly could have a negative impact on economic growth. .

This policy debate has become more urgent as the Fed navigates a divided decision-making environment. While Miran and others, including St. Louis Fed President Alberto Musalem, see further rate cuts as a way to protect the labor market, officials like Vice Chair Philip Jefferson urge caution, noting that rates are still "somewhat restrictive" and should be changed gradually as the Fed nears a neutral stance.

. Musalem estimates there is still 50–75 basis points of "insurance" left to support near-full employment, while Jefferson stresses the importance of moving slowly to avoid overheating an economy where inflation is still above the 2% goal. .

The division was clear at the Fed’s October gathering, where both Miran and President Jefferson opposed the 25-basis-point cut, but for opposite reasons. Miran pushed for a 50-basis-point reduction to address swiftly declining inflation and a weakening job market, while Jefferson favored holding rates steady due to persistent inflation risks.

. This disagreement reflects broader uncertainty as the Fed heads into its last meeting of 2025 in December. Chair Jerome Powell has indicated another cut is possible but emphasized that it is "far from" guaranteed, highlighting the central bank’s ongoing struggle to balance economic growth with price stability. .

Market data currently suggest a 63% probability of a 25-basis-point cut in December, but Miran’s push for a larger move points to the potential for increased market swings. With Miran set to leave the Fed in January, the urgency to settle the policy direction grows, as the central bank is about to lose a prominent supporter of more aggressive easing.

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