Executive Summary
Federal Reserve Governor Milan has advocated for a more dovish monetary policy, including potential interest rate cuts, citing recent economic data and the significant influence of stablecoins on the neutral interest rate. Milan’s assessment highlights weakening labor market data and better-than-expected inflation figures as primary drivers for a policy shift. He specifically points to the proliferation of stablecoins as a factor that could depress the neutral interest rate, or "r-star," by up to 0.4 percentage points, suggesting that current interest rates may be excessively tight.
The Event in Detail
Speaking to economists in New York, Federal Reserve Governor Milan stated that economic data received since the Federal Reserve's September policy meeting supports a "dovish stance." He noted that "inflation data has been better than we expected" and that labor market data has "weakened." This assessment aligns with reports of the US JOLTS Job Openings data coming in lower than expected at 7.181 million.
Governor Milan elaborated that the growing adoption of crypto tokens linked to the US dollar, specifically stablecoins, is poised to depress what economists refer to as the "r-star," or neutral interest rate. Citing previous research, he indicated that stablecoin growth could reduce the Federal Reserve's benchmark interest rate by 0.4 percentage points. Milan emphasized that stablecoins are already increasing demand for US Treasury bonds and other dollar-denominated liquid assets from non-US buyers, a demand he expects to continue growing. He declared, "Stablecoins could become an elephant worth trillions of dollars in central bankers' rooms." This additional supply of loanable capital in the economy is expected to depress neutral interest rates. Milan concluded that if neutral interest rates decline, the Federal Reserve "needs to lower policy interest rates to avoid dragging down economic growth," suggesting a federal funds rate around 2% would be appropriate if the neutral rate is around 0.5%.
Market Implications
A more dovish monetary policy from the Federal Reserve, characterized by interest rate cuts, is generally interpreted as a bullish signal for risk assets, including cryptocurrencies. Reduced interest rates typically increase liquidity in financial markets and lower borrowing costs, which in turn can boost investor risk appetite. Following the release of lower-than-expected US JOLTS Job Openings data, Bitcoin (BTC) price experienced a jump of over 2%, trading at $111,825, while Ethereum (ETH) surged more than 2%. Furthermore, a weakening US dollar, often a consequence of falling interest rates, can nominally strengthen assets priced in dollars, such as BTC.
However, market sentiment remains susceptible to fluctuations in Fed policy. Around November 14, 2025, a perceived hawkish stance by the Federal Reserve led to a significant downturn in the cryptocurrency market. During this period, BTC experienced a sell-off, declining between 5.62% and 6.55% in a 24-hour period, pushing its value below the $100,000 mark to a six-month low of approximately $95,000 to $97,000. This decline was attributed to diminishing expectations for a December rate cut and notable whale selling, with long-term holders offloading over 815,000 BTC in the preceding month. Data from Coinbase-owned crypto exchange Deribit indicated a surge in demand for downside protection in derivatives markets, particularly for protective puts below the $100,000 strike price.
Federal Reserve Governor Milan's remarks provide a key expert perspective on the intersection of monetary policy and digital assets. His assertion that "all the data we have received points to a dovish stance" underscores the justification for potential policy adjustments. His detailed analysis of stablecoins' impact on neutral interest rates integrates this emerging financial instrument into core macroeconomic considerations, highlighting its growing influence on traditional financial frameworks.
Broader Context
Governor Milan's focus on stablecoins and their potential to depress the neutral interest rate reflects a growing recognition within traditional financial institutions of the systemic relevance of digital assets. This discussion positions cryptocurrencies not merely as speculative instruments but as factors influencing fundamental macroeconomic variables. The ongoing interplay between inflation data, labor market health, and the Federal Reserve's policy decisions continues to be a critical determinant for both conventional financial markets and the broader crypto ecosystem, leading to periods of both strategic opportunity and pronounced volatility.
Edgen Crypto·Nov 15 2025, 00:59