New US Fed governor says rates should drop around 2 percentage points

The Fed governor newly appointed by President Donald Trump argued Monday for significantly lower interest rates, saying that concerns over inflation are overblown.

"I believe the appropriate Fed funds rate is in the mid-2% area, almost two percentage points lower than current policy," said Fed Governor Stephen Miran at The Economic Club of New York.

He added that "with respect to tariffs, relatively small changes in some goods prices have led to what I view as unreasonable levels of concern."

Last week, Miran was the sole dissenter to the Fed's decision to cut interest rates by a quarter point, instead favouring a larger half-point reduction.

Trump has frequently urged the Fed to slash rates this year, stepping up political pressure on the independent central bank.

But underscoring policymakers' different considerations, St Louis Fed President Alberto Musalem warned in a separate speech Monday of risks that above-target inflation could be more persistent than desirable.

He said officials should "tread cautiously" in reducing rates.

The central bank's latest decision brought the benchmark lending rate to a range between 4.00% and 4.25%, and it flagged risks to employment in lowering levels.

Miran, in explaining his thinking on the US economy, said that policy is "very restrictive."

He warned that "leaving short-term interest rates roughly two percentage points too tight risks unnecessary layoffs and higher unemployment."

Miran's swift arrival to the Fed last week came as Trump has ramped up pressure for large rate cuts.

The president has also moved to oust another Fed governor, who is currently challenging her removal.

Miran had been chairing the White House Council of Economic Advisers prior to joining the bank, and was sworn in just before the Fed's rate-setting meeting started Tuesday last week.

For much of this year, Fed officials have largely held off rate cuts while monitoring the effects of Trump's tariffs on inflation.