Federal Reserve governor Christopher Waller was one of the few top economists who correctly predicted that the central bank could drive down inflation without causing a spike in unemployment. He is now the most prominent Fed voice in favor of lowering interest rates.
Waller, first nominated to the post by President Donald Trump in 2019, has become one of the most closely watched Fed officials, in part because of his apparent prescience about the policy path to bringing down inflation without nuking the jobs market.
Further increasing intrigue despite being one of the more hawkish Fed officials during the peak of the post-pandemic inflation wave, Waller is now one of two Fed board members who dissented at the last Fed meeting and called for rates to move lower. Waller is also reportedly being looked at by Trump as a successor to Fed Chairman Jerome Powell.
“Chris Waller has been as right as anyone in recent years,” Jason Furman, the chairman of former President Barack Obama’s Council of Economic Advisers, told the Washington Examiner. “He also makes a good case for substantial interest rate cuts, although I am more nervous about persistent inflation than he is.”
Furman, an economist at Harvard University, added in an email that Waller would be a “perfectly credible” pick to lead the Fed.
Waller attended Bemidji State University for his undergraduate studies and later earned his PhD from Washington State University. Prior to being sworn in as a member of the Fed board in 2020, Waller served as executive vice president and director of research at the Federal Reserve Bank of St. Louis since 2009, which he joined after being a professor at the University of Notre Dame.
Following the COVID-19 pandemic, inflation spiraled out of control and hit highs not seen in generations. Monetary economists struggled to plot the best course of action. Many expected that one half of the Fed’s dual mandate, namely to pursue full employment, would suffer in exchange for fulfilling the other half of the mandate, namely maintaining stable prices.
But Waller at the time thought that a so-called “soft landing,” when inflation is lowered without spiking unemployment or causing a recession, could be handled. He argued that, given the country’s hot labor market, if monetary policy were tightened, employers would simply cut vacancies rather than start firing existing employees.
Prominent economists like Harvard economist and former Treasury Secretary Larry Summers disagreed. Summers, Olivier Blanchard, and Alex Domash published an essay in August 2022 rebutting Waller’s prediction.
They argued that it was “entirely unconvincing” that declining vacancies could successfully ease inflation without causing unemployment to spike.
But it is now three years later, and a recession, or even a major uptick in unemployment, has never materialized.
At the end of 2022, the median projection by Fed officials for the unemployment rate throughout 2023 and 2024 was 4.6%, dropping to 4.5% by the end of 2025. But, in reality, the unemployment rate has never topped 4.2%, where it is now.
Now, as the Fed has held off cutting its interest rate target, Waller is a dissenting voice and has called upon the Fed to start lowering interest rates. During the July Federal Open Market Committee meeting, Waller and fellow Fed governor Michelle Bowman preferred a quarter-percentage point interest rate reduction.
One of the biggest uncertainties this year, since Trump took office, has been what effect the president’s aggressive tariff increases would have on prices. Waller believes that tariffs are merely one-off increases in the price level and won’t cause long-term inflation.
Mark Hamrick, senior economic analyst at Bankrate, told the Washington Examiner that Waller also doesn’t think Trump’s tariffs will result in a wage-price spiral.
A wage-price spiral occurs when prices jump, causing employees to demand higher pay to compensate for the increases. Because of the extra costs to pay those employees, businesses are forced to raise prices even more, resulting in more inflation.
“Among the reasons he feels this way is because he believes the labor market doesn’t have the same strength where workers could essentially go to their employers and say, ‘Look what these tariffs are doing, I’m demanding a pay raise,’” Hamrick said.
“He’s more concerned about the restrictive current level of rates,” Hamrick added.
In an Aug. 1 statement after his July dissent, Waller elaborated and said that while the labor market looks alright on the surface, data revisions, stalling private-sector payroll growth, and other data suggest downside risks to the jobs market have grown.
“With underlying inflation near target and the upside risks to inflation limited, we should not wait until the labor market deteriorates before we cut the policy rate,” Waller said.
The backdrop is that Waller is a candidate to replace Powell, who Trump has repeatedly excoriated for holding off on lowering interest rates.
There are several names in contention to replace Powell, including National Economic Council director Kevin Hassett, former Fed governor Kevin Warsh, Waller, and Bowman, among others.
FED INTEREST RATE CUTS EXPECTED DESPITE MIXED NEWS ON INFLATION
Hamrick said the markets would likely appreciate a Waller pick, given his background in the Fed, that he isn’t steeped in politics, and the fact that he has already been through the Senate confirmation process.
“I think investors would welcome him as being a solid, known choice in the sense that he’s already been confirmed for this position that he currently holds, he isn’t political, and that he’s a solid economist,” Hamrick said.
