Vote for a rate cut! Waller "wants to progress too much"

Overnight, Federal Reserve policymakers decided to maintain interest rates unchanged with a vote of 10 to 2. Governor Christopher Waller aligned with another "Trump loyalist," Governor Stephen Miran, both casting dissenting votes advocating for a 25 basis point rate cut.

According to Bloomberg columnist Jonathan Levin's latest analysis, Waller's move, as one of the final candidates for the next Federal Reserve Chair, may cater to President Trump's preference for low rates, but it forces this supposed "honorable public servant" to undergo a "loyalty test," potentially incurring a heavy reputational cost.

The market reacted swiftly to this dynamic. On the betting site Kalshi, the odds of Waller succeeding the Federal Reserve Chair surged from 8% on Tuesday to 15% on Wednesday. Trump has previously made it clear that he would prioritize a candidate who could deliver lower rates. Levin points out that Waller's dovish dissenting vote was aimed at pleasing the president, but this not only undermines his image as a technocrat who bases policy on economic data but may also harm the Federal Reserve's institutional independence.

Levin bluntly states, Waller's decision is seen as a form of "political calculation" or "grandstanding," rather than being strictly rooted in economics. Although Levin has long supported Waller, considering him the best candidate to defend institutional independence, he must admit that Waller's current image will certainly take a hit. Levin laments, "It's unfortunate that Trump has put him in this position."

Economic Justifications Are Insufficient

From a purely economic perspective, Waller's dissent appears unconvincing. Levin notes, "It is currently unclear why further rate cuts are so urgent as to warrant dissent." Although Waller tends to use an index adjusted for tariffs, inflation remains slightly above target.

Meanwhile, strong GDP data and a stabilizing labor market have "eliminated the urgency for rate cuts."

Additionally, the committee's current policy stance is at a reasonable "neutral" level. The estimated neutral policy interest rate range is between 2.6% and 3.9%, while the current rate range, after three rate cuts, is 3.5% to 3.75%, which falls within this range.

Levin recalls Waller's stance in July, when he believed tariffs were a one-time price increase and inflation was close to target. However, with subsequent data releases, many of the assumptions at that time (such as weak GDP growth) have proven to be no longer valid.

Contradicting the Intent of Cautious Dissent

Waller's actions seem to contradict the standards he himself set.

Levin quotes Waller's original words during a July Bloomberg TV interview: "Generally speaking, if you are going to dissent, you have to be very clear that you believe this is an important matter at this moment." Waller also warned against becoming a "serial dissenter," stating, "If you are dissenting at every meeting like a 'crusader' regardless of what happens, then you might as well not attend." "Everyone knows what you will do."

However, the reality is that Waller is approaching the image he warned about. Levin wrote, "Waller is not yet a 'serial dissenter,' but in the last two meetings where he (and Trump) did not get their way, he has been two for two."

Unlike Milan, who has long been seen as a 'hardcore dove' and has voted against every time, this is Waller's first dissenting vote, and this shift deepens the outside world's doubts about his motives. Levin believes that while the intense debate within the Federal Reserve has its value, the premise is that dissent must be "strictly rooted in economics," otherwise it appears more like "political calculation."

Levin believes that while the intense debate within the Federal Reserve has its value, the premise is that dissent must be "strictly rooted in economics," otherwise it appears more like "political calculation."

The Cost of Institutional Independence

Despite his critical stance on this vote, Levin still insists that Waller is the best candidate for the position of Federal Reserve Chair. He praised Waller as "an outstanding communicator" and noted that since joining the Federal Reserve in 2020, he has had "an excellent track record in judging the economy." Waller identified the risk of persistent inflation in 2021 and suggested in 2022 that the Federal Reserve could combat inflation with high interest rates without triggering a recession.

But Levin emphasized that this particular action "does not seem like one of Waller's more glorious moves." This indicates that even if the Federal Reserve's independence is ultimately maintained, the institution will "not emerge unscathed."

Levin concluded, "Trump's ugly pressure campaign and unorthodox hiring practices—forcing Federal Reserve Chair candidates to essentially bow before him—will not be easily forgotten, even if this circus ultimately places the right candidate in the top position of the central bank."