Former Fed Governor Stephen Miran: The Fed risks overreacting to transitory inflation

The Federal Reserve’s current reliance on lagging economic data and outdated models risks an unnecessary interest rate hike in December that could stifle growth without addressing the primary driver of inflation: oil prices. Stephen Miran, Senior Strategist at Hudson Bay Capital, argues that the "fool in the shower" parable illustrates the danger of overreacting to temporary data points, such as the 1% of core PCE currently skewed by energy costs and technical mis-measurements. Unlike the post-pandemic era characterized by record fiscal stimulus and aggressive quantitative easing, the current labor market lacks the wage growth necessary to turn supply shocks into persistent inflation. Consequently, the economy can achieve non-inflationary growth by expanding the supply side through technological investment and regulatory changes. Financial markets already signal confidence in the Fed’s long-term targets, suggesting that further tightening is a response to a flawed "new reaction function" rather than actual inflationary pressure.