Last night, Waller from the Fed, in an interview with official media CNBC, said he supports an emergency rate cut in July, stating that we cannot wait until the labor market collapses before taking action. This is completely different from Powell's opinion expressed just this Wednesday during the meeting; Powell believes we should wait until summer is over, which means the earliest rate cut would be in September.
Why is Waller publicly singing a different tune? Clearly, he is stepping forward to compete for the next chair. Just after the Fed decided not to cut rates this time, the 'understanding king' erupted in anger, tweeting continuously on social media that Powell is just Mr. Too Late, a disgrace to America, and he called for a 250 basis point rate cut. Powell definitely won't pay attention to this call, but Waller couldn't sit still; he is a strong contender for the next Fed Chair.
Now there are three candidates: first is the son-in-law of Estée Lauder, Kevin Warsh, who has worked at the Fed, but his business background raises questions about his independence. The other is Bowman, who has always been a hawkish representative.
Only Waller is different; he has no hawkish historical baggage, and in the fourth quarter of 2023, he was the most dovish among all members, directly giving a six-rate cut expectation. He has always been a weather vane at the Fed, changing his stance as soon as the data changes.
For the 'understanding king', choosing Waller has an obvious advantage: Waller has a very solid professional background. He has not only worked at the Fed for a long time but also has a PhD in economics, and he recently conducted a very important study on the impact of U.S. tariffs on inflation, which he believes is one-time.
The U.S. currently has neither the supply chain shortages caused by the Russia-Ukraine conflict nor the wage increases caused by immigration at that time, nor the inflation due to fiscal expansion during Biden's presidency. So he believes that the impact of tariffs now will not cause inflation to rise, and the CPI data in June, which was below expectations, validated his statement. Waller's speech is very substantial, laying a solid theoretical foundation for him to become the Fed Chair. Now he has directly expressed his loyalty to the 'understanding king'; will the 'understanding king' choose him?
Nick, a famous Wall Street journalist known as a spokesperson for the Fed, commented that Waller is very likely to become the Fed Chair. He said Waller's choice to express his stance at this moment is a very wise decision. Firstly, it shows the 'understanding king' his dovish position, and secondly, it helps create divisions within the Fed before the July meeting.
Now, among the 19 members of the Fed, 7 supported not cutting rates at all this year during this vote. After Waller's statement, it will be easier to rally more dovish members to support him for a rate cut in July. If the CPI and employment data in July continue to support Waller's views, then Waller's capital will become even stronger, and more members are likely to support him, pushing him step by step to become the Fed Chair.
Waller's little abacus is clattering away, so how much suspense is left in the race for the Fed Chair? Will it force the Fed to change direction, and what impact will it have on the global financial markets? We will continue to follow up with in-depth analysis.
