Publicly jumping ship and presenting a "letter of allegiance" to the understanding king! Is this person going to be the new chairman of the Federal Reserve?

Federal Reserve Governor Waller expressed support for a rate cut in July, significantly diverging from the mainstream views within the Federal Reserve, and aligning closely with Trump's calls for a rate cut. Analysts believe this statement may be related to his considerations for competing for the next Federal Reserve Chair position.

On June 20, Wall Street Journal's previous article pointed out that Federal Reserve Governor Waller (Christopher Waller) recently stated that he expects tariffs will not significantly raise inflation, and therefore the Federal Reserve may cut rates as early as the July meeting.

This contrasts with the Federal Reserve's cautious stance this week, deciding to keep interest rates unchanged for the fourth consecutive time, highlighting the internal divergence on policy direction. The latest dot plot shows that seven FOMC voting members expect no rate cuts this year, two expect one rate cut, and ten expect two to three rate cuts.

Notably, on June 20, former President Trump again criticized Federal Reserve Chair Powell as a "numbskull," stating that the benchmark interest rate should be lowered by at least two percentage points. Waller's statement supporting a July rate cut sharply echoes Trump's call for a rate cut.

Analysts believe that Waller's timing for this statement is subtle and may be related to his strategy in competing for the Federal Reserve Chair position. Journalist Nick Timiraos, known as the "new Federal Reserve correspondent," pointed out that Waller has historically maintained a flexible position within the Federal Reserve, able to adjust his views under different circumstances. This flexibility may give him an advantage in competing for the Chair position.

Waller Advocates for July Rate Cut

Waller's latest remarks clearly expressed support for an early rate cut. He emphasized that the Federal Reserve should cut rates to avoid potential slowdowns in the labor market:

"If you start to worry about the downside risks in the labor market, act now, don’t wait. Why should we wait until we actually see a collapse before we start cutting rates?"

Regarding the impact of tariffs, Waller believes this should be a "one-time effect that will not trigger sustained inflation." He stated:

"We have paused for six months, thinking that tariffs would have a huge impact on inflation, but we have not seen that happen."

Waller suggested a gradual rate-cutting strategy: "You would want to start slowly, cutting rates gradually to ensure there are no major surprises. But the key is to initiate this process."

Currently, futures market pricing shows that the probability of a rate cut at the Federal Reserve meeting on July 29-30 is only about 8%, with the market expecting the first rate cut to be delayed until September.

Highly Aligned with Trump's Position

Waller's statement sharply echoes Trump's call for a rate cut.

Wall Street Journal article mentioned that Trump again criticized Powell as a "numbskull" on social media on Friday, acknowledging that his strong criticism makes it harder for Powell to cut rates, but stated that "friendly and neutral attitudes do not work." Trump believes that the benchmark interest rate should be lowered by at least 2 percentage points, even suggesting it should be 2.5 percentage points lower than the current level of 4.33%. He also stated that the federal government is incurring huge interest expenses due to the Federal Reserve's failure to lower borrowing costs. Trump further remarked:

I don't understand why the Federal Reserve Board doesn't overturn this "complete idiot"! Maybe, just maybe, I might really have to change my mind and fire him? But anyway, his term is ending soon!

Trump previously indicated that he would "soon" announce Powell's successor, well ahead of Powell's term ending in May 2026. Notably, Waller is a Federal Reserve governor appointed by Trump in December 2020.

Market Questions Waller's Motivations

Waller's dovish statements have sparked speculation in the market about his true motivations. Zero Hedge sarcastically remarked on social media:

Waller is actually saying: "Mr. President, I would be happy to serve as the shadow Federal Reserve Chair before that stupid idiot leaves."

Neil Dutta, chief economist at Renaissance Macro Research, believes that Waller is "the most obvious choice to succeed Powell." He stated:

"What Trump needs is someone who can intellectually defend dovish monetary policy when necessary and do so in a way that commands respect from the Federal Reserve staff. Waller is that person."

Nick Timiraos, a journalist known as the new Federal Reserve whisperer, pointed out two truths:

1. Waller has historically held a flexible position within the Federal Reserve, able to adjust his views under different circumstances. He made a significant pivot to dovish in the fourth quarter of 2023, expecting six rate cuts, and then adjusted his stance based on inflation data. This flexibility may give him an advantage in competing for the chair position.

2. The likelihood of Waller being elected as Federal Reserve Chair next year is low; he would do well to clarify in advance that inflation is not a concern under tariff shocks, and if it does happen, he can take advantage of it. Unlike some other potential candidates, Waller has been making hawkish statements for a decade, only to encounter a president wanting to implement dovish policies. Moreover, unlike the current chair, he doesn't have to worry too much about making two mistakes on inflation, as it won't become part of his political legacy.

Currently, the online prediction market Kalshi lists Waller as a top candidate to succeed Powell, with Treasury Secretary Scott Bessent and former Federal Reserve governor Kevin Warsh also under consideration

The Federal Reserve's Internal Divisions Intensify Policy Uncertainty

Waller's statements show a clear divergence from the overall stance of the Federal Reserve. According to the latest "dot plot," among the 19 participants, 7 believe that interest rates will remain stable this year, 2 think there may be one rate cut, while the remaining 10 expect 2 to 3 rate cuts.

The Federal Reserve voted unanimously this Wednesday to maintain the target range for the federal funds rate at 4.25%-4.5%. Powell emphasized the high level of uncertainty during the press conference, citing the desire to observe the impact of Trump's policies as a primary reason.

Additionally, an article from Wall Street Insight pointed out that on Tuesday, two Federal Reserve officials with voting rights at the FOMC meetings in 2027 expressed their views, and compared to Waller, who seems eager for rate cuts, they are not as urgent.

Richmond Fed President Barkin stated that the FOMC is not in a hurry to cut rates and is not yet ready to rule out inflation risks from tariffs.

San Francisco Fed President Daly expects that the FOMC may cut rates this fall. She said that personally, having more information might lead to a rate cut in the fall