As Federal Reserve officials convened last month, investors were confident that the first interest rate cut of 2025 was on the horizon. However, many were left wondering about the actions of Governor Christopher Waller.

For Waller, the path forward is challenging. A close ally of former President Trump has just joined the Federal Reserve and will almost certainly vote for the significant rate cuts Trump desires.

Waller is also a contender on the list of candidates to succeed the Fed Chair. If he wants a bright political future, he needs to take similar actions to enhance his prospects.

Yet, he has taken a different approach. When Trump’s recent appointee, Governor Lisa Cook, voted against a 50 basis point cut, Waller sided with the majority in favor of a 25 basis point cut.

For months, Waller has argued for the return of rate cuts, though some colleagues remain skeptical of this stance. In comments last week, he acknowledged that policy decisions are made through consensus rather than by any one individual.

During an event in New York, Waller stated, “We all understand that we must compromise on our positions to craft a clear and consistent policy for the markets and the American people.”

Waller’s choices reflect his policy approach and the image he has cultivated in the eyes of investors. A former economics professor, he has long been an advocate for central bank independence.

He is also known for making data-driven, sometimes contrarian judgments based on insightful analysis. Friends and colleagues note that he is unlikely to sacrifice his reputation for political gain.

Waller is currently under the spotlight during a high-risk moment. Trump is not only weighing who will be the next Fed Chair but is also executing a broader campaign to exert more control over the Fed, which aims to keep politics out of rate decisions. Analysts suggest that any erosion of this independence could have far-reaching negative implications for both the U.S. economy and global markets.

In addition to calling for lower borrowing costs, Trump and his allies are seeking a critical self-examination of the Fed and possibly significant reforms.

As Waller emerges as a leading contender to succeed Chair Jerome Powell when his term ends in May, his stance on these issues is being closely monitored.

Those who know Waller expect that he will defend the institution against measures that would undermine its autonomy, particularly regarding monetary policy. However, he is not seen as someone intent on simply maintaining the status quo. Since joining the board, he has questioned the Fed’s role on issues such as climate change and has advocated for cost reductions, with friends noting that he could achieve more as Chair.

“Waller is a leader who is very mission-oriented,” said Kathy Mazzarella, who chaired the St. Louis Fed’s board from 2016 to 2019 when Waller was the bank's research director. “He understands and respects that the Fed needs to focus on its mission and dual mandate,” added Mazzarella, now CEO of Graybar. “But he also recognizes that the world is evolving, and you must find ways to remain relevant, functional, and productive.”

Currently, Waller's policy outlook calls for lower rates, and his strong push has led some to speculate whether he is merely “auditioning” for the Chair position. He counters that his views are based on long-term theories regarding tariff impacts and recent assessments of rising labor market risks.

Waller has consistently argued that Trump's tariffs will lead to a one-time increase in price levels rather than enduring inflation. This “textbook” approach suggests that the Fed can overlook tariff impacts when setting rates, setting him apart from some colleagues.

In identifying signs of labor market weakness, Waller has been ahead of the curve. In June, he cited increasing signs of fragility, becoming the first policymaker to advocate for resuming rate cuts. During the next policy meeting in July, he voted against the majority’s decision to maintain rates.

Days later, new data showed a sharp cooling in hiring and an uptick in unemployment, lending credence to his viewpoint.

“You can never tell what he’s thinking, but his economic arguments are straightforward,” noted Michael Feroli, chief U.S. economist at JPMorgan. “Even if you disagree with his arguments, as I did then, you recognize that they are coherent.”

This isn’t the first time Waller has taken a contrarian stance and persisted amid skepticism from peers. In 2022, he argued that the Fed could manage inflation without causing a spike in unemployment, facing criticism at that time. Yet, so far, he has proven correct.

Despite these credentials, Wall Street will be watching closely to see if Waller yields to Trump’s pressure to support rate cuts that he believes are economically unsound. Many believe he will remain loyal to his analysis.

Aditya Bhave, senior economist for U.S. economics at Bank of America Securities, regards Waller as “a respected economist” who likely won’t urge colleagues to lower rates far below neutral levels—where rates neither stimulate nor suppress the economy. “I’m not sure that he would support a significant cut below that level,” Bhave remarked.

Defending the Fed’s Independence

Although calling for lower rates, Waller continues to underscore the importance of keeping politics out of Federal Reserve decision-making.

In a speech last May, he praised the benefits of an independent Fed and suggested that firing Fed officials would be detrimental to the U.S. economy. In a July interview, he asserted that the government must choose a Chair with credibility in combating inflation, or else, “you’ll see inflation expectations soar,” he said. “You won’t get lower rates. You’ll get higher rates.”

Meanwhile, Trump has intensified efforts to shape Fed policy. He has continuously disparaged Powell and hinted at removing him. Additionally, he attempted to fire Governor Cook, prompting a legal battle currently before the Supreme Court. He filled a Fed vacancy with Cook, who was on unpaid leave from her senior advisor position.

Trump's team has also explored options to exert more influence over the regional Feds, expanding control over rates.

The Federal Reserve's seven-member board has the authority to dismiss any official from these branches. Some analysts are concerned that if another Governor departs, Trump appointees could dominate the Fed board and may face government pressure to remove regional Fed Presidents.

It remains unclear how Waller will respond to such pressures, but as Chair overseeing the regional Fed committees, he has played a key role in reviewing several regional Fed positions.

Spreading the Mission

Waller may become an active partner in other changes at the Fed, advocating for regional Feds to reduce costs and streamline operations, including an approximate staff reduction of 350 in 2023.

Secretary of the Treasury Janet Yellen is managing the search for the next Chair and noted she may submit a finalist list to Trump in December. Yellen has called for a “comprehensive institutional review” of the Fed and accused the central bank of jeopardizing its independence through participation in “mission creep” and “unconventional” balance sheet policies.

Other competitors for Fed Chair, such as former Governor Kevin Warsh, have echoed similar sentiments.

Waller supports the Fed’s ample reserves strategy for managing its balance sheet but has expressed concerns regarding the trade-offs involved in asset purchases to stimulate the economy, including interest rate risks. Colleagues say he also sympathizes with the viewpoint that the Fed should restrict its involvement in sensitive political issues like diversity efforts and climate change.

When the Fed withdrew climate-related financial risk standards with other bank regulators earlier this month, critics warned this could threaten the stability of the banking system. Waller praised the move, stating, “Good riddance.”