Passed Over for Fed Chair, Waller Turns Hawkish Again

Federal Reserve Governor Christopher Waller, once seen as a dove, is now making the case for higher interest rates. The shift has fueled views that Waller, long regarded as a hawk until 2024, has returned to that stance. Some in the market also see the turn as a break with President Donald Trump’s administration after Waller was passed over for the top Fed job.

Speaking at an event in New York on July 13, Waller said the Federal Open Market Committee should consider tightening monetary conditions in the near term if core inflation data due this week comes in high again. He said tariff policy, rising energy prices and the buildout of artificial intelligence infrastructure have left monetary policy at a crossroads.

"However you analyze it, prices are rising this year," Waller said. He pointed to the Fed’s preferred inflation gauge, with core personal consumption expenditures prices up 3.4% in the 12 months through May.

Waller had previously been grouped with the Fed’s hawks. After joining the Board of Governors in 2020, he made curbing inflation his top priority and was often mentioned alongside then-St. Louis Fed President James Bullard as one of the central bank’s leading inflation fighters. Through 2024, he argued that rates should not be cut without evidence inflation was moving back toward target, earning a reputation in markets as a data-dependent hawk.

That changed sharply last year. Waller publicly argued for early rate cuts, citing a softer labor market and downside risks to growth. He also said tariff-driven price increases would probably prove temporary. At FOMC meetings, he was part of a minority that backed lower rates, prompting markets to recast him as one of the Fed’s leading doves.

His latest shift is also being viewed through a political lens. Waller was seen last year as a strong candidate to succeed former Fed Chair Jerome Powell, but Trump instead nominated Kevin Warsh as the next chair. Since then, Waller has moved away from his earlier calls for rate cuts and returned to stressing a forceful response to inflation.

A jump in oil prices tied to tensions in the Middle East, combined with Waller’s shift, has lifted the odds of a Fed rate increase on July 29. US overnight index swap markets on July 13 priced in about a 50% chance of a quarter-point increase in the benchmark rate, up sharply from less than 40% earlier in the session.

Park Shin-young, New York correspondent, Hankyung.com nyusos@hankyung.com