This week, Waller will testify before Congress for the first time as Federal Reserve Chair, facing a group of lawmakers eager for answers.
In his first month as Federal Reserve Chair, Kevin Waller has made his stance clear: when articulating his views on the economy, less is more. Indeed, Waller has largely remained silent on market-related issues.
But this week, as Waller appears before Congress for the first time in his role as Fed Chair, he will face lawmakers demanding answers. The hearing is part of the semiannual monetary policy report required by law, which mandates that the Fed Chair testify twice a year. The Federal Reserve submitted its official report to Congress last Friday (July 10), in which policymakers unequivocally reaffirmed the Fed’s resolute stance: “The Committee will achieve price stability,” vowing to bring inflation back down to its 2% target.
Congress will press for details on the anti-inflation strategy, and Waller must demonstrate the Fed’s independence.
Mark Spindel, Chief Investment Officer at Potomac River Capital, stated, “Waller must respond to his bosses on Capitol Hill.”
Jonathan Pinger, Chief U.S. Economist at UBS Group, noted that it would be difficult for Waller to argue that the Fed’s approach to risks outlined in its outlook is off-limits for discussion.
He added that members of Congress will expect Waller to clarify his plan for bringing inflation down to the Fed’s 2% target—this being the “fundamental reason” for summoning him to testify before the committee.
Waller is scheduled to appear before the House Financial Services Committee at 10 a.m. Eastern Time on Tuesday, followed by testimony before the Senate Banking Committee the next morning. Ironically, the very lawmakers set to question him are the same group who voted just this past May to confirm his appointment as Fed Chair. During his confirmation hearing, Waller received a warm welcome from Republicans but faced intense, repeated questioning from Democratic lawmakers over whether he would become a puppet of Trump. This week, the political tug-of-war over “Fed independence” is certain to play out once again.
Facing strong external skepticism over his alleged role as a “spokesperson for the White House,” Waller recently declared publicly and firmly: “The Federal Reserve has a long history of independence, and right now we are an independent central bank—you will see no change in that.” However, markets care more about his policy actions.
Inflationary pressures remain elevated, and divisions within the Federal Reserve between those favoring rate hikes and those advocating a wait-and-see approach have intensified.
The system shows that, at the time of Walsh's testimony, the Federal Reserve's interest rate-setting committee had significantly shifted toward a stance favoring potential rate hikes. In June of this year, nine Federal Reserve officials projected at least one rate hike for the year, with six of them expecting more than one move. In the Fed’s newly released semiannual Monetary Policy Report, officials disclosed a significant finding: given persistently high inflation, current levels of the federal funds rate (in the range of 3.5% to 3.75%) are markedly below what several of the Fed’s internally used numerical policy rules suggest, with these models calling for substantially higher rates.
Currently, the Fed’s preferred inflation gauge—the core PCE price index—rose 3.4% year-over-year in May, still far above its 2% target. According to the latest data from CME Group’s FedWatch Tool, financial markets are aggressively repricing expectations: not only is there now widespread market conviction that the Fed will deliver at least one rate hike by year-end, but the probability of an immediate, surprise rate increase at the upcoming July FOMC meeting has surged to one-third (approximately 33%). Per the Atlanta Fed’s market probability tracker, markets assign a 70% likelihood of a rate hike occurring before September.
Claudia Sahm, chief economist at New Century Advisors and a former Federal Reserve staffer, stated that she believes some central bank officials are losing patience and are ready to raise rates to bring down inflation.
However, another faction among Fed officials argues that the central bank can afford to remain patient and wait to see whether inflation eases modestly before taking action. This view is particularly informed by the recent global fuel crunch triggered by the outbreak of the U.S.-Iran war, which has once again intensified inflationary pressures in the United States. In its report released last Friday, the Fed acknowledged that, beyond energy price spikes driven by geopolitical conflicts, tariff barriers pushing up goods prices and surging demand from AI data centers for semiconductors and other components have all contributed to persistently elevated inflation.
Rejecting Forward Guidance, Walsh Seeks to Emulate the Volcker and Greenspan Playbook
During his campaign for the position, Walsh advocated for rate cuts through television appearances and other channels—a stance aligned with the White House’s preference at the time. But as Chair, he firmly refused to pre-judge the outcome of the July rate decision. At the early-July central bank forum in Sintra, Portugal, when confronted by global markets’ attempts to discern the policy path, he adopted a highly defensive posture, explicitly rejecting any form of forward guidance and deflecting with: “I won’t provide forward guidance because we’re meeting in just four weeks. I want us to close the door in that room and have a vigorous ‘family fight’ and debate—but right now, I have nothing to say.”
In this regard, he made clear that he is deliberately seeking to emulate former Fed Chairs Paul Volcker and Alan Greenspan, both of whom historically aimed to speak as little as possible in public settings.
This approach once drew congressional ire. Both chairs are remembered for their epic confrontations with lawmakers. Volcker—who served so long ago that smoking was still permitted in hearing rooms—would famously vanish behind a thick cloud of cigar smoke whenever he disliked a line of questioning.
Greenspan, meanwhile, is best remembered for telling a member of Congress, “If you think you understand what I just said, you’ve misunderstood me.”
Spindel remarked that these chairs’ testimonies resembled former Secretary of State Henry Kissinger asking reporters whether they had any questions about the answers he had already prepared.
Spindel noted that Wash’s approach is likely to encounter resistance, as he lacks the stature of Volcker or Greenspan when appearing for his first testimony. “He assumed office without the extensive track record of empirical analysis that Paul Volcker or Alan Greenspan possessed.”
Moreover, lawmakers are also prepared to subject him to intense questioning on whether AI is a cure for inflation or a poison. When taking office as Fed chair, Wash expressed optimism that AI could suppress inflation by boosting productivity, thereby allowing the central bank to pivot toward rate cuts. However, during last week’s grilling, he clearly could not deny the fact that AI data center construction is fueling demand aggressively. He could only vaguely deflect, saying the inflationary effects of AI are currently manifesting on the 'demand side' of the economy, adding, 'But I am confident that at some point in the future, we will see its impact on the supply side (in lowering inflation).'
CPI Data Collides with Hearing: Wash Faces Dual Political and Economic Pressure
Compounding the pressure, Wash’s testimony on Tuesday coincided with the release of the U.S. June CPI (Consumer Price Index) data. Although oil prices have retreated thanks to prior actions by Trump, leading markets to expect the year-over-year CPI growth rate to dip slightly from May’s 4.2% to 3.8%, with core CPI falling to 2.8%, this still fails to alleviate broader inflation concerns. On Wednesday, the U.S. will release PPI (Producer Price Index) data. This barrage of hard-hitting economic indicators will directly put Wash in the hot seat.
In addition, Democrats on Capitol Hill view Wash as a close ally of the White House, despite the Federal Reserve’s mandate for operational independence.
They are unlikely to show leniency, as they sense an opportunity: if they can link President Trump and his appointed Fed chair to high inflation readings, they may gain control of at least one chamber of Congress in November.
Wash may also attempt to sidestep questions, as he did during his first press conference as chair in June, telling lawmakers he has established five working groups to help drive 'institutional transformation' at the central bank. According to recent disclosures, these five groups will comprehensively redefine the Fed’s operations, focusing respectively on: the Fed’s public communication mechanisms, balance sheet (quantitative tightening) policy, the quality of existing economic data sources, the central bank’s inflation assessment framework, and how artificial intelligence (AI) will impact future productivity and employment.
Spindel remarked that such evasive tactics may not work on Capitol Hill this week: 'Congress has plenty of ways to force you to speak.'
Editor/melody