Insights 
VT 
Federal Reserve Governor Stephen Miran addressed the Nomura Research Forum. He mentioned that AI investments might increase the neutral interest rate and that recent policy changes, particularly in immigration, have rapidly shifted this rate.
The current Federal Reserve policy is more restrictive than perceived due to a fall in the neutral rate. Miran’s views differ from his colleagues mainly in the timing of interest rate cuts rather than the end goals.
Optimism About Inflation
Miran is optimistic about inflation because of anticipated declines in housing-related costs, expecting a decrease in services inflation soon. He assigns less importance to gradual policy changes and believes significant shocks, like immigration, impact policy.
Data does not suggest that tariffs are driving inflation, as key imported goods are not experiencing price increases unlike other goods. The US goods inflation rates align with those in other countries globally.
The US Dollar (USD) remains the world’s most traded currency, accounting for over 88% of global foreign exchange turnover, averaging $6.6 trillion in daily transactions in 2022. Quantitative easing by the Fed usually results in a weaker USD, while quantitative tightening can strengthen it.
We are seeing a notable signal from a Federal Reserve governor that current policy is already quite tight, mainly because the underlying neutral rate of interest has likely fallen. This suggests the Fed may be closer to cutting interest rates than the market is currently pricing in. This viewpoint is based on an optimistic outlook for inflation, particularly from declining housing costs.
Implications For The Us Dollar
This perspective is bolstered by recent data, as the September 2025 Consumer Price Index showed the shelter component easing to a 3.5% year-over-year increase, its most sluggish pace since early 2023. This supports the idea that a material decline in services inflation is on the horizon. Given that the latest headline PCE inflation for August 2025 was 2.4%, we see a clear trend towards the Fed’s 2% target.
From a trading standpoint, this creates an opportunity, as fed funds futures are currently pricing in only a 20% probability of a rate cut by the December 2025 meeting. A dovish surprise could lead to a rally in fixed-income derivatives, suggesting long positions in SOFR or Treasury futures could be advantageous. These comments about being open to moving faster than a gradual pace amplify the potential for a sharp repricing in the coming weeks.
This outlook also has direct implications for the US Dollar, which has been strong for much of the past year. A faster-than-expected pivot to easing by the Fed would likely weigh on the dollar index (DXY), which has been trading near the 106.00 level. Options strategies that bet on a weaker dollar, such as buying puts on the USD against other major currencies, should be considered.
However, we must watch upcoming data releases very closely, especially concerning housing. The entire view is vulnerable if inflation data for October and November 2025 comes in hotter than expected, which would force a reevaluation of this dovish stance. The historical tightening cycle of 2022-2023 showed us how quickly the Fed will react to stubborn inflation.
