Donald Trump has lost a defender of interest rate cuts within the American Federal Reserve (Fed): a senior official explained on Friday that he now feared lasting inflation due to the war in the Middle East.
“Two weeks ago”, Christopher Waller was still considering voting for monetary easing, declared this governor of the central bank of the United States, on the economic television channel CNBC.
But since, “the Strait of Hormuz has remained closed, it appears that the conflict will prolong and that oil prices will remain high for longer. So that suggests that inflation is more of a cause for concern than I thought.”
Mr. Waller is considered by Fed observers as a “dove”, that is to say as a manager more concerned with supporting activity than fighting against inflation.
He has voted against the grain (for monetary easing rather than the status quo) several times in recent months, most recently at the January meeting.
This week, the Fed left its key rates unchanged by eleven votes to twelve. Mr. Waller agreed with the majority.
His case is unique.
A doctor in economics with modest origins, he combines articulate demonstrations and unvarnished remarks.
He has been governor since 2020 – Donald Trump appointed him during his first stay in the White House – and he was cited as one of the Republican billionaire’s favorites to take the helm of the monetary institution in the spring, at the end of Jerome Powell‘s mandate.
Mr. Trump, who calls for much lower rates, ultimately preferred former governor Kevin Warsh.
Last year, when the president sharply raised tariffs on imported goods, Christopher Waller argued that the Fed could view any inflationary rebound as short-lived, “passing.”
The situation is “very different” with the surge in energy prices, he explained on Friday.
“When you impose a customs duty on toys, it is not going to be reflected in the costs of all products, but oil is an essential intermediate product and this increase will end up being passed on elsewhere, and that is where we fear a significant and persistent oil shock,” he continued.
“It’s not like a temporary rise that immediately goes down again,” he insisted.
However, he is not at all at the point of advocating for a Fed rate hike, only for a status quo.
“Brain” versus “guts”
Until then, he believed that the central bank needed to be more accommodating to support growth and the labor market.
Christopher Waller said Friday that the data around American employment forced him to question himself.
On average, the United States has created almost no jobs over the past three months. The country nevertheless remains close to a situation of full employment with unemployment at 4.4%.
“I have been an economist for 45 years and I have never been told that zero (job creation, Editor’s note) could be normal,” said the governor.
However, “much recent research indicates that labor force growth will be zero or almost zero this year,” implying that the unemployment rate may remain stable even without job creation.
“I find myself in this slightly weird situation,” described Christopher Waller, “my brain understands the mathematical logic, but my gut tells me it can’t be a good thing. »
This stagnation of the working population is largely attributed to the very harsh migration policies of the Trump administration.
The United States has never “experienced in history” this kind of configuration, the Fed president emphasized at a press conference this week.
“It’s something that we’re monitoring closely and, you know, we’re concerned about. But ultimately, we can conclude that this is the consequence of a deliberate policy (…) regarding immigration,” concluded Jerome Powell.
