Last night, a piece of news emerged—Federal Reserve Governor Waller has become the Trump team's favored candidate for the 'next Federal Reserve Chairman.'
Bloomberg cited sources saying that the Trump team was impressed by Waller's willingness to take policy actions 'based on forecasts rather than current data' and valued his profound understanding of the entire Federal Reserve system.
This news carries significant implications:
First, the reason the Trump team favors Waller is that he is 'willing to make decisions based on forecasts' (preventive rate cuts), rather than making decisions 'based on current actions' like the current Federal Reserve Chairman Powell. One is proactive, while the other is somewhat lagging.
Secondly, this is Trump's preliminary probe into the market. The news emerged around 22:00 Beijing time on Thursday and somewhat caused the U.S. stock market to turn downward. From the market's performance, Waller may have barely passed, as the stock market experienced a slight decline—market participants believe Waller is not as 'dovish' compared to other candidates.
Thirdly, Trump himself does not like Waller; he fears that choosing from within the Federal Reserve may lead to a 'second Powell' (who was cooperative during the nomination but completely different afterward). The reason he is willing to give Waller an 'interview' opportunity should be that his advisors told him 'Waller's election is best for the market,' just as we have analyzed in the past. Powell has not yet stated whether he will continue to serve as a regular governor after his term ends; if he is worried that Trump will undermine the independence of the Federal Reserve, he may stay on and occupy a governor position. This is called institutional defense: even if he loses the chairmanship, he wants to reduce the new president's opportunity to appoint multiple governors at once. But if Waller becomes the successor, Powell may give up his governor position.
Fourth, a noteworthy detail is that Trump himself has not talked to Waller. This is not a denial of Waller but rather a fear of being 'misinterpreted' by the market. If he meets Waller now, the market might interpret it as almost certain, leading to significant market fluctuations.
White House spokesperson Kush Desai stated in a statement: 'Any discussion about personnel arrangements should be regarded as pure speculation unless it comes from the President himself.'
On the contrary, we believe that after extensive media coverage, Waller's chances of being elected may have decreased (he will not be the first choice but will be on standby as a backup). The reason is simple: the stock market 'turned downward' last night, which is not the answer Trump wants. However, if the U.S. stock market experiences a sharp decline as the announcement of the Federal Reserve Chairman approaches, Waller may be elected, as Trump would then be reluctant to take risks and would not pursue the best answer.
