Vote to cut interest rates! Waller "too eager to make progress"
Overnight, Federal Reserve policymakers voted 10-2 to keep interest rates unchanged. Governor Christopher Waller and another “Trump confidant,” Governor Stephen Miran, formed a united front, both casting dissenting votes to advocate for a 25 basis point rate cut.
According to the latest analysis by Bloomberg columnist Jonathan Levin, as one of the final four candidates to be the next Fed Chair, Waller’s move may have catered to President Trump’s preference for lower rates, but it also forced this supposed “honorable public servant” into a “loyalty test” that could come at great reputational cost.
The market reacted quickly to this development. On betting site Kalshi, the probability of Waller becoming FED Chair soared from 8% on Tuesday to 15% on Wednesday. Trump has previously made clear he will prioritize candidates who deliver lower interest rates. Levin notes that Waller’s dovish dissent was aimed at pleasing the president, but this not only damages his image as a technocrat who sets policy based on economic data, but could also harm the Fed’s institutional independence.
Levin bluntly states, Waller’s decision is seen as “political calculation” or “grandstanding,” rather than firmly rooted in economics. Although Levin himself has long supported Waller and sees him as the best option to defend institutional independence, he concedes Waller’s image will certainly suffer. Levin laments, “It’s regrettable that Trump put him in this position.”
Economic Rationale Isn’t Strong
From a purely economic perspective, Waller’s dissent appears unconvincing. Levin points out, “It’s currently unclear why a further rate cut is so urgent as to provoke dissent.” Even though Waller prefers using indexes adjusted for tariffs, inflation still slightly exceeds the target.
Meanwhile, robust GDP data and a stable labor market have “eliminated the urgency for rate cuts.”
Additionally, the committee’s current policy stance is already at a reasonable “neutral” level. Policymakers estimate the neutral policy rate range is between 2.6% and 3.9%. After three rate cuts, the current rate range is 3.5% to 3.75%, which is within this range.
Levin reviewed Waller’s position in July, when Waller argued tariffs were a one-off price increase and inflation was near target. However, as new data has emerged, many of those assumptions—like weak GDP growth—have proven no longer valid.
Betraying the Original Intent of Responsible Dissent
Waller’s current action also appears to contradict his own stated standards.
Levin quotes Waller from a Bloomberg TV interview in July: “Usually, if you’re going to dissent, you need to make very clear that you believe it’s an important issue at this moment.” Waller also warned against being a “serial dissenter,” saying, “If you’re a ‘crusader’—dissenting at every meeting regardless of circumstances—then you shouldn’t even bother coming. Everyone knows what you’ll do.”
Yet in reality, Waller is approaching the very image he cautioned about. Levin writes, “Waller isn’t a ‘serial dissenter’ yet, but in the last two meetings where he (and Trump) didn’t get their way, he dissented both times.”
Unlike Miran, who has long been seen as Trump’s ‘hardcore dove’ and opposes every vote, this is Waller’s first dissent, making the shift all the more suspicious. Levin believes fierce debate within the Fed has value, but only if dissent is “firmly rooted in economics”—otherwise, it looks like “political calculation.”
Levin believes fierce debate within the Fed has value, but only if dissent is “firmly rooted in economics”—otherwise, it looks like “political calculation.”
The Price of Institutional Independence
Though critical of the vote, Levin still insists Waller is the best candidate for Fed Chair. He praises Waller as “an outstanding communicator” with “a superb record of economic judgment” since joining the Fed in 2020. Waller saw the risk of persistent inflation in 2021 and in 2022 proposed that the Fed could fight inflation with high rates without triggering a recession.
But Levin stresses that this move “does not seem like one of Waller’s more honorable moments.” This suggests that even if Fed independence is ultimately preserved, the institution will not emerge unscathed.
Levin concludes: “Trump’s ugly pressure campaign and unorthodox hiring practices—forcing Fed Chair candidates to essentially grovel before him—won’t be quickly forgotten, even if the circus ultimately puts the right person at the top of the central bank.”
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