Key Points
Federal Reserve Governor Stephen Milan will step down shortly to make way for the newly Senate-confirmed Chair Kevin Warsh. In an interview with CNBC, Milan defended his tenure: "I have always done what I believe is right." Milan's views on inflation have not always prevailed within the Fed, but Warsh is expected to be a more steadfast supporter. The two share a highly aligned perspective on responding to supply shocks, such as tariffs and the Iran war.
On October 15, 2025, Federal Reserve Governor Stephen Milan was interviewed by CNBC during the "American Investment Forum." When Stephen Milan joined the Federal Reserve Board, he held numerous radical ideas for reforming the central bank. Now, as he prepares to conclude the shortest governor term in 71 years, he remains convinced that his positions were correct. However, in the CNBC interview, the 42-year-old Milan acknowledged that the practical workings of the Fed have tempered his expectations for the pace of change—reform has been far slower than he envisioned. He stated that the Fed "is fundamentally a committee, not an institution run by a single ultimate authority. No one can act unilaterally here; if you don't agree with the rules, you're out." This assessment is crucial for two reasons: first, Milan could return to the Fed during Trump's current term; second, the new Chair, Kevin Warsh, shares a deep alignment with his core reform philosophy. Warsh was confirmed by the Senate this Wednesday and will fill the governor seat vacated by Milan, with no overlap in their terms. However, Warsh must confront the reality Milan has long understood: the Fed harbors diverse viewpoints, and institutional changes often progress slowly. Milan assumed his role in September 2025, succeeding the resigning Adriana Kugler. He said, "You have to persuade everyone." While external critics argued that Milan's stance threatened Fed independence, he maintained that the Fed's policymakers and staff have always been open to considering his views. Early in his tenure, Milan did not resign from his position as Chair of the White House Council of Economic Advisers, holding both roles concurrently. He cited a desire to avoid a third Senate confirmation process in a short period, but this decision sparked controversy amid Trump's public criticism of Powell. He resigned from the White House role in February 2026 and has no current plans to return. Milan countered external criticism: he argued that his influence with Trump stemmed precisely from his data-driven judgment that interest rates were too high. "My analysis is evidence-based. I have always done what I believe is right." During his tenure, Milan set a notable record: he dissented in all six Fed meetings he attended, consistently advocating for larger interest rate cuts, aligning perfectly with Trump's calls for "significant rate reductions." Maintaining Stance: Unwavering Advocacy for Rate Cuts Even as he prepares to depart, Milan maintains that interest rates should be cut significantly. He stated, "If I were to update my interest rate projections on the dot plot now, compared to the last Summary of Economic Projections, I would reduce the number of cuts by one." Previously, he had forecast 100 basis points of cuts (four 25-basis-point moves) for 2026, far exceeding the median projection of his Fed colleagues. Now, considering that the Fed has begun cutting rates and "the data makes me slightly more concerned about inflation," he has adjusted his forecast to three 25-basis-point cuts (totaling 75 basis points). However, he still emphasized: "We must front-load the cuts. We should not deliberately suppress the labor market." Milan's argument for rate cuts is based on multiple factors, with the core premise that Trump administration policies will lower inflation, creating room for monetary easing:
Deregulation: He believes the impact of regulation on the supply side is severely underestimated. "The difference between allowing a business to operate and prohibiting it is night and day... Deregulation allows businesses to increase production at lower cost, dampening inflation." He estimates this could reduce future inflation by 0.5 percentage points, while acknowledging that uncertainty from tariff-induced inflation might partially offset this effect.
Persuading Colleagues: Ideas Gaining Traction Although some colleagues remain inclined toward cautious study, Milan believes he has won over several supporters: "They may not fully agree, but compared to September 2025, their positions have moved significantly closer." Warsh also strongly supports deregulation, calling Trump's related plans "the most significant reforms since President Reagan." Another core tenet of Milan's argument is that inflation data is distorted. An upcoming paper co-authored with two Fed economists will argue that recent software inflation has been artificially inflated by technical factors, skewing both headline and core inflation measures. Milan's most crucial argument concerns the Fed's policy logic for responding to supply-shock inflation, such as the current oil price surge: Monetary policy affects the economy with a 12-18 month lag, so it should not overreact to short-term price fluctuations. He gave an example: If a clothing company raises prices due to tariff costs, "monetary policy can do nothing about that." Similarly, an oil price shock triggered by the Iran war is a one-off event; the Fed should focus on persistent inflation trends, not short-term volatility. Warsh's Echo: High Degree of Alignment Market concerns: If the Fed persistently ignores supply shocks, it could undermine its anti-inflation credibility. Milan failed to persuade all his colleagues—three officials still dissented at the most recent meeting due to inflation concerns. However, Warsh's arrival will give this viewpoint greater voice within the Fed. During his nomination hearing on April 21, Warsh explicitly agreed with Milan's view: The Fed overfocuses on micro price movements and should concentrate on core inflation trends, not short-term fluctuations caused by geopolitics or single commodity prices. Even after stepping down, Milan will remain a significant participant in Fed policy debates. Before his appointment, he spent years studying monetary policy, and he is finalizing his paper on software inflation before his departure. "I am willing to return, but the decision is not mine," Milan said. The White House did not respond to whether Trump is considering renominating Milan. Current Chair Powell stated that the governor seat will be kept vacant until the investigation into the headquarters renovation is complete. His term lasts until January 2028; if he steps down earlier, it could create an opportunity for Milan's return. If Milan returns, he would be a key ally for Warsh—just as Milan himself experienced, Warsh will need internal support to push reforms within the Fed.
Comments