FED: Gov Waller: Next Fed Chair Needs Market Credibility Or Rates Will Rise

Gov Waller on BBG TV continues to make his pre-communications blackout case for a rate cut on July 30th. Repeating his arguments from his speech late Thursday on the transitory nature of tariff-driven inflation and downside risks to the labor market, he elaborates on his thinking about a possible dissent at the upcoming meeting; whether September is too late to start resuming rate cuts; and on the impact of the selection of the next Fed Chair.

• Asked if he is willing to dissent to a hold: "I never want to commit to an action before the meeting. If everybody committed before, you do not need to have the meeting to have a discussion. The goal is to go to the meeting, sit down, listen to all sides. People try to convince me of their views and I try to convince them of my views and make a decision on what you think is the right outcome, how the data is coming in. I don't think I can be any more clear as to what my position is and why I think we need to do this. It is how I read the data and how I think about going forward." "It is often the case that you dissent if you think it very clear at this moment in time this is the important thing to do. If you are going to go "I am going to dissent at every meeting no matter what happens" then you do not have to show up, everybody knows what you're going to do. It is important to make sure if you dissent you do it carefully and you have the right reasons and it is not going to turn into a serial dissenting case. That is how I take my job seriously. I would only think about doing this; I dissented on the balance sheet slow down earlier this year. That is the situation we are in now."
• Asked about whether starting to cut in September is too late, Waller says: "That is the debate. What does it mean to wait six weeks? Is it that critical? Probably not. It could be. But there is also the reverse. Why wait until September? Do I want to wait and risk something happening? This is what I saw last summer. We left [rates on hold in] July and then we got a very weak labor market report, the unemployment rate jumped 0.2 percent. Payrolls were down from where they were and people were screaming last August, "You should have cut in July!" It is always one month. We live in a world in which we have to respond to real-time data to get a sense of where the economy is going. I've always said if you worry about long and variable lags, which everybody talks about, the whole point of that is to get ahead of it, not wait for it to happen and then policy action that takes quarters or months down the road to have any impact."
• Asked if President Trump's call for lower Fed rates threaten de-anchoring inflation expectations, Waller says: "I have not seen much in the way of market expectations being unanchored in any ways you want to measure. In the near term they might go up, but in the longer term I'm not seeing it. Either the market is dismissing all of this as chatter and noise, or at some point if something happens it becomes much more serious than you might see a discrete jump and that will be a problem for everybody."
• Says re the selection of the next Chair: "You will have to have somebody with credibility with the markets or you will see inflation expectations spike. You will not get lower interest rates, you will get higher interest rates. We have seen this everywhere around the world. Scott Bessent knows this. This is not something that is lost on anybody."
• Asked if he would take the Chair's job if the President asked: "If the President contacted me and said he wanted me to serve, I would do it. He has not contacted me. If he says, "Chris, I want you to do the job," I will say yes. He is not talking to me. It is a hypothetical."
• Asked if tariffs if stretched out could cause upside inflation: "If there is a constant sequence of higher and higher tariffs that will get this rolling impact on prices, that is true. If it is just a question of delaying it, that does not change my argument. Whether you see the spike in July or in June or August or September, when it happens is irrelevant for the economics. That is a nonstarter. Firms could also just spread it out in smaller increments over several months. The total effect ends up being the same. They just get there later and it will be smaller amounts. The bigger thing is if we continually get another wave of tariffs and other waves of tariffs, that is when things become more problematic thinking about what will happen with inflation."