Stephen Miran and the Fed

Some thoughts about Stephen Miran, the Federal Reserve, and Exorbitant Privileges and Burdens

Trump has been on record about securing a majority of the Fed’s Board of Governors of his choosing, and it seems like the Senate is playing along. Last Thursday, Senate hearings began for the potential confirmation of Stephen Miran, a major figure within Trump’s Council of Economic Advisors, and one of the key architects of ‘Trumponomics’ insofar as it exists. While Trump nominated Miran to temporarily replace Adriana Kugler, a former member of the Board of Governors who resigned with five months left of her term, it’s hard not to read this as the first stage of the structural reorganization of the Fed that the Trump administration desires. Today I’ll be digging into who Miran is, what some of his key economic views have been on record, and how that could play out for the US dollar as the global reserve currency.

First, a little background on Stephen Miran. He is a Harvard trained economist (Martin Feldstein was his dissertation chair); his career has been multifaceted, with time in the private sector as a financial analyst, strategist and consultant, as well as time in the government working for the Treasury Department in 2020. He resigned from his position in the Treasury Department after Biden’s inauguration, returned to the private sector, and then, in 2023, left the firm he had cofounded with Dan Katz, a coworker in the Treasury Department who now works under Scott Bessent in the Treasury Department, joined the libertarian-leaning Manhattan institute where he wrote 33 articles and op-eds over 18 months, and then joined Hudson Bay Capital Management in February 2024. Miran’s writings at the Manhattan Institute and beyond have articulated several ideas that are touchstones for what we are coming to know as Trumponomics, and surely played some role in Trump’s selection of Miran for chair of his Council of Economic Advisors.¹ Trump nominated Miran to take over Kugler’s newly opened seat on the Fed’s board until the end of her assigned term, and on September 2, Semafor reported that the Trump administration is pushing to fast track Miran’s confirmation. On September 4, the Senate Banking Committee held Miran’s confirmation hearing where Miran stated that he has not been forced to promise his commitment to Trump’s desired policy ends, the Banking Committee is set to vote on his confirmation on September 10, and then he will go before the Senate as a whole.

Miran’s key papers are such a distillation of Trumponomics that I should really be thinking about it as Miranomics². He’s written about the need for large-scale tariffs in order to protect domestic industries in his February 2024 report “Brittle Versus Robust Industrialization,” in which he criticized the Biden administration’s approach to industrial policy with subsidies and targeted tariffs and lobbied, instead, for “aggressive supply-side reform,” including slashing environmental, labor, and product regulations, increasing “investments in science and technology education,” and limiting government spending to “demand support from defense-driven procurement.” Setting aside that education spending in Democratic administrations tends to support science and technology education and that federal spending cuts in the US have decimated research budgets for science and technology development, Miran believes, in line with Milton Friedman’s economic thought, that defense spending is one of the lone, if not the only, real public good that ought to be federally funded. In April 2024 Miran wrote about the need for the Fed to more aggressively cut interest rates, and in March and October 2024 he critiqued the notion of Fed independence, arguing that active government coordination with the Fed would improve monetary policy outcomes and that the Fed wasn’t truly independent to begin with. And finally, the pièce de résistance of Miran’s pre-CEA chair position writing may be “A User’s Guide to Restructuring the Global Trading System,” from November 2024, which articulates a vision of decreasing domestic demand for imports via tariffs, a devaluation of the US dollar in order to make US exports more attractive in global markets, and a movement away from the US’s current status as issuer of the world’s reserve currency. The piece finishes with a very nuanced discussion of the likely costs of those policies, and why Miran still believes they are desirable policies³. (You should also check out the Odd Lots interview with him here.)

Miran’s ‘Mar a Lago Accord,’ as this piece has sometimes been described, articulates a vision that is not that different in its fundamentals from Matthew Klein and Michael Pettis’s Trade Wars are Class Wars, which just so happened to be required reading for the Biden administration’s staff working on economic issues. Klein and Pettis also argued that the US’s status as the issuer of the world’s reserve currency created problems for its growth and development policies, they also argued in favor of retooling the US government’s approach to trade, and they argued that trade partners around the world “took advantage” of strong public spending in the US, while running trade and fiscal surpluses at the expense of their own populations’ welfare. (I wrote about this in some detail on my other blog, if you want to read more.) And it’s important to note that the Biden administration’s pursuit of Klein and Pettis’s recommendations generated a lot of debate in progressive spaces about the relative virtues and demerits of trade restrictions, particularly given China’s dominance in producing and exporting renewable energy generating technology, electric vehicles, and more goods that are integral to the transition away from fossil fuels. China’s first mover advantage in mass producing clean energy technology is probably not what bugs Trump, nor does the class war part of trade jockeying that Klein and Pettis critique, but I want to dig a little more into the dollar dominance part.

Exorbitant privilege is the term economists use to describe a country that issues the world’s reserve currency. What makes a currency a global reserve currency is the likelihood that international debts or the costs of key commodities like oil are likely to be denominated in that currency. So, a country with exorbitant privilege could issue theoretically unlimited volumes of currency without fear of global demand for that currency eroding, since other countries have an incentive to hold that currency in order to pay obligations denominated in US dollars. This gives the country with exorbitant privilege more leeway to conduct monetary policy, since the country that issues the reserve currency doesn’t have to pay attention to the effect of its decisions on exchange rates with the global reserve currency. Exorbitant privilege also fosters fiscal space, or the ability of a government to run a deficit without fear of bond market dynamics ultimately affecting exchange rates or begetting a currency crisis. (More on all of this in future posts.) I’ve written a fair amount about fiscal space here and here and here, but bound up in all of it is the fact that fiscal space increases the more that other central banks, investors, and treasuries around the world want to hold your currency, whether that is for purchasing exports, paying bills, or some other reason. In my discussion of Pettis and Klein, I noted that the paradox with their argument that the US should abdicate some of its exorbitant privilege is that doing so will necessarily limit its fiscal space.

All of this brings me back to what I find intriguing at best and worrying at worst about Miran, and his likely appointment to the Fed’s Board of Governors, whether or not he’s able to get away with keeping his employment as Chair of the CEA. The Fed’s work to maintain full employment, stabilize inflation, and blast liquidity (read: cash) to banks and central banks around the world in times of crisis has big implications for global financial stability, and also the demand for US dollars. Sometimes the spillovers of US monetary policy are destabilizing, as when higher interest rates lead to an appreciation of the US dollar relative to other currencies, and worsen debt burdens in other countries. Other times, as during the three recent large banking panics, decisions by the Federal Reserve to open dollar swap lines with fourteen other central banks around the world⁴ to assure banks, creditors, and investors of financial stability helped assuage global fears of default, which also strengthened demand for the US dollar in moments of economic chaos. Some argue that this exorbitant privilege is also a burden; should the Federal Reserve really be the dealer of last resort in moments of economic free-fall? If Miran moves from a position in which he mostly gives advice with no assurance of completion, to a role in which he has access to the levers of monetary power, we may find out.

There’s a lot going on with Stephen Miran, and I’m definitely expecting to write more about his proposals and more going forward.

1. Other features that didn’t hurt those chances included Bessent’s support for Miran and also Miran’s contributions to PACs for Trump’s 2020 and 2024 campaigns.

2. Did I just learn that his last name is pronounced “My-ran”? I did.

3. In that Odd Lots interview, he also crows a bit about how reports of incipient inflation due to Trump’s tariff announcements on Liberation Day were premature. I’m curious how he feels about current evidence of rising producer price indices, and definitely plan to write more about all of this stuff going forward.

4. A dollar swap line involves the Fed’s commitment to accepting domestic-currency denominated assets from a selection of central banks around the world as collateral for US dollars. I’ll be writing about this more in the future. If you want to know, the fourteen central banks are: the Bank of Canada, the Bank of Mexico, the Bank of Brazil, the Bank of England, the European Central Bank, the Swiss National Bank, Denmark’s National Bank, Norges Bank, the Rijksbank of Sweden, the Bank of Korea, the Bank of Japan, the Monetary Authority of Singapore, the Reserve Bank of Australia, and the Reserve Bank of New Zealand.