Promoting parallel interest rate cuts and balance sheet reduction, inflation is a choice for the Federal Reserve
On December 16, as Trump's confidant pushed for Waller to become the next chair of the Federal Reserve, the probability of Waller becoming the new chair of the Federal Reserve has surpassed Hassett, rising to the top. Deutsche Bank's Matthew Luzzetti team pointed out in their latest research report that if Waller is elected as chair of the Federal Reserve, he may support interest rate cuts while advancing balance sheet reduction (QT). However, the premise for both to proceed in parallel is that regulatory reforms can reduce the banking system's demand for reserves, and whether this can be achieved in the short term remains uncertain.
As a popular successor to Powell, Waller earlier this year proposed the view that "inflation is a choice," arguing that inflation is not caused by supply chains or geopolitical issues, but rather stems from the Federal Reserve's own policy decisions, calling for the Federal Reserve and the Treasury to each fulfill their respective responsibilities for interest rates and fiscal accounts, while the Federal Reserve must reform and return to its core mission of maintaining price stability. Despite criticizing policies, he is extremely optimistic about the prospects of the U.S. economy, believing that AI and deregulation will bring about a productivity explosion similar to the 1980s.
In terms of background, Waller is a lawyer by training and served as a Federal Reserve governor from 2006 to 2011, playing a key communication role during the global financial crisis. He has long criticized the Federal Reserve's aggressive balance sheet expansion policy over the past 15 years, arguing that quantitative easing deviates from the central bank's core functions. Currently, Waller is a partner at the Druckenmiller Family Office Duquesne, while also serving as a distinguished visiting scholar at the Hoover Institution and a lecturer at the Stanford Graduate School of Business, his background spanning academia, regulation, and investment gives him broad influence in the fields of monetary policy and financial markets.
