On Tuesday, during a House hearing, Waller delivered his clearest statement since taking office, affirming that he would uphold his professional responsibilities even in the face of pressure from Trump.
Fed Chair Waller stated on Tuesday that he would "fulfill his duties" even under pressure from U.S. President Trump. This was Waller's most explicit response to date regarding how he would handle political pressure similar to that experienced by his predecessor, Powell.
During a hearing before the House Committee on Financial Services, Waller was asked how he would respond if Trump continued to interfere with the central bank—for example, by attempting to remove Fed Governor Lisa Cook.
Waller noted that the U.S. Supreme Court recently reaffirmed the Federal Reserve’s independence in setting monetary policy. If individuals are targeted, he said, “I will continue to fulfill my duties.” He added, “There is undoubtedly a great deal of politics outside the Fed, and my goal is to ensure there is no politics inside the central bank. If politics does creep in, we will root it out.”
Waller emphasized that “the Fed’s independence is sacrosanct.” He stated that only by maintaining its independence—and ensuring markets believe in that independence—can the Fed effectively carry out its mandate.
However, Democratic lawmakers warned during the hearing that Waller cannot rely solely on the Supreme Court’s rulings on Fed independence to justify his stance.
Inflationary pressures persist, and Waller refrains from declaring victory prematurely
Since succeeding Powell, Waller has faced dual economic and political challenges. U.S. inflation remains above the Fed’s 2% target, and renewed escalation in the Middle East has further heightened uncertainty about the future path of inflation.
Data released Tuesday by the U.S. Bureau of Labor Statistics showed that the Consumer Price Index (CPI) rose 3.5% year-over-year in June, below market expectations, largely driven by falling energy prices. Following the release, financial markets swiftly revised their expectations for the Fed’s policy trajectory, with traders significantly scaling back bets on a July rate hike.
According to the CME Group’s FedWatch Tool, traders now assign approximately a 12% probability to a 25-basis-point rate hike at the Fed’s July 28–29 meeting, down from 42% on Monday; the implied probability of a hike at the September 15–16 meeting stands at about 53%, down from a previous 75%.
Zach Griffiths, Head of Investment Grade Credit and Macro Strategy at Credit Sights, stated: 'This data has caused the market to pull back expectations for a July rate hike. Although inflation remains too high and the situation in the Middle East is deteriorating, this data is sufficient for the Federal Reserve to remain on hold.'
However, the hawkish signals conveyed by Wallsh in his congressional testimony have put markets on alert. During his congressional hearing, Wallsh said he would not view a single month’s data as decisive progress on inflation. He remarked, 'Some may look at today’s data and say, “Mission accomplished—everything is fine.” That is not my view.'
Wallsh reiterated that the Fed’s primary task remains bringing inflation back to its 2% target. He stated that if policy is set correctly, 'the inflation surge of the past five years will become history.'
Trump has publicly expressed willingness to delegate authority—could policy conflicts become unavoidable going forward?
Wallsh is scheduled to appear before the Senate Banking Committee at 22:00 Beijing time on Wednesday. The committee previously recommended him for the position of Federal Reserve Chair in a party-line vote at the end of April, with Democratic senators primarily concerned about his ties to Trump and whether he could maintain independence amid Trump’s explicit desire for lower interest rates.
Wallsh’s current policy stance is seen by markets as showing no immediate inclination toward rate cuts, similar to Powell’s earlier position, which also implies he may again face pressure from Trump to lower interest rates.
Jon Faust, Professor of Economics at Johns Hopkins University and former senior advisor to Powell, said that if markets had previously worried Wallsh might become a 'puppet,' his first press conference after taking office has alleviated some of those concerns. Faust noted that Wallsh’s recent formation of multiple working groups—comprising prominent economists, corporate executives, and central bank officials—further demonstrates his commitment to maintaining professionalism.
Samuel Tombs, Chief U.S. Economist at Pantheon Macroeconomics, said that Wallsh previously gained Trump’s support partly because he signaled a dovish tilt. However, now that Wallsh has assumed the role of Federal Reserve Chair, he can adopt a longer-term and more neutral perspective.
Wallsh has also recently begun discussing more cautiously the impact of AI on inflation and interest rates. While he previously believed AI could boost productivity and reduce inflation, recent Fed reports indicate that AI-related investments are pushing up certain prices, and rising software costs could introduce new inflationary pressures.
Wallsh also noted that while the timing of AI-driven supply-side improvements and productivity gains remains uncertain, increased demand for capital, technical talent, and infrastructure is already evident.
PIMCO economist Tiffany Wilding stated that the June inflation data will provide some relief to certain members of the Federal Open Market Committee (FOMC), but it will not entirely close the door on future rate hikes.
Market participants believe that in the coming months, if inflation remains persistently high or if support for rate hikes grows within the Federal Reserve, the relationship between Wallsh and Trump could still face challenges.
Previously, Trump had highly praised Wallsh’s appointment at his swearing-in ceremony at the end of May, saying he hoped the new Fed chair would be “fully independent and not look to me for cues.” At least for now, Wallsh appears to have taken Trump at his word.
Former Cleveland Fed President Loretta Mester said, “The president said he wants Kevin to do what he thinks is best. I’m not sure how long that will last.” However, she noted that “things are going well for now” and described the newly formed Federal Reserve working group as “very promising.”
Editor/melody