Statements from Federal Reserve Board member Stephen Miran suggested that the interest rate trajectory will be a gradual decrease to avoid the risks of a conditional recession, while confirming that he does not see a recession coming soon, but continued tight policy could increase its likelihood. This comes in the context of a clear division within the Fed, especially after the December 2025 decision which saw the third consecutive cut of a quarter point to a range of 3.50–3.75%, amidst objections from 3 members, one of whom was Miran who preferred a larger cut of half a point.
The current situation reveals that the Fed does not have complete consensus on the pace of cuts. The last reduction was expected, but the division in voting highlighted the fragility of the consensus, especially with inflation remaining relatively high. At the same time, the Fed raised its growth expectations for 2026, creating a state of "divergence" in messages: cautious easing on one hand, and optimism about growth on the other. The result is that the market has become very sensitive to any new data concerning inflation and jobs.
The logic of expectations until mid-January 2026 suggests that continued inflation slowdown with labor market stability will make gradual cuts the norm, with the possibility of an early additional cut if the data supports it. However, the internal division makes the "average" hide a wide variance between hawks and doves, meaning any positive surprise in inflation could open the door for a new cut, and any inflationary shock would halt the trajectory. There are also structural factors like tariffs that could remain pressuring prices, or a slowdown in the AI investment cycle that could create demand gaps supporting further cuts.
What are the scenarios we have from all this noise, Gigi??!!!
1Scenario of a quarter-point cut early (most likely): If inflation gradually eases, the doves will push to support growth, and Miran will accept a gradual cut despite the hawks' objections.
2Scenario of a temporary hold: If inflation remains sticky or there are price surprises in energy/tariffs, the Fed might take a "pause for evaluation" before any new cuts.
3Scenario of a bigger half-point cut (unlikely): If the labor market deteriorates quickly or activity clearly contracts, we might see a bigger step, which is what Miran has called for before, but it needs strong evidence and will increase the division.
In short, Miran's statements confirm that the Fed is on a path of gradual cuts to avoid a conditional recession, but the internal division makes every meeting a new testing point. The market is now focused on December and January data for inflation and jobs, as this will determine whether we see an early quarter-point cut, a temporary pause, or even a larger step if conditions worsen. The message to investors: Prepare for high volatility, as the Fed is not united, and every new reading could change the market direction in an instant.
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