The U.S. Senate confirmed Waller as a Federal Reserve governor on Tuesday, with a term of 14 years, paving the way for him to succeed Powell as the chair of the Federal Reserve.

Written by: Yang Chen

Source: Wall Street Observations

The leadership transition at the Federal Reserve has entered a critical phase. The U.S. Senate confirmed Waller as a Federal Reserve governor on Tuesday, with a term of 14 years, paving the way for him to succeed Powell as the chair of the Federal Reserve.

According to Reuters, the Senate has begun the confirmation process for Waller to serve a four-year term as Federal Reserve chair, with a vote possibly taking place as soon as Wednesday. Powell's term as chair will expire this Friday.

As Waller takes over the Federal Reserve, the central bank's political independence is facing severe tests. The Trump administration has been consistently pressuring the Federal Reserve to lower interest rates, while oil prices have surged significantly since the outbreak of war in Iran, leading to rising inflation pressures, and market expectations for rate cuts this year have narrowed considerably.

Current financial market pricing indicates that the probability of an interest rate hike before December is about one-third, with the Federal Reserve's current short-term interest rate target range being 3.50% to 3.75%.

Unprecedented Pressure from Trump on the Federal Reserve

The Trump administration's impact on the Federal Reserve's independence has been unprecedented, with actions including:

Attempts to dismiss Federal Reserve governor Lisa Cook, with the related case currently submitted to the Supreme Court for review; supporting the Department of Justice in investigating a construction renovation project led by Powell. A federal judge believed that the investigation was merely a pretext to pressure Powell into lowering rates or resigning.

The Department of Justice later withdrew the aforementioned investigation, but its chief prosecutor in Washington stated that the possibility of reopening the investigation cannot be ruled out.

In the face of this series of legal attacks against the Federal Reserve, Powell announced that he would take the unusual step of remaining as a governor after his term as chair expires. He stated that this move is intended to respond to "a series of legal attacks threatening the Federal Reserve's ability to conduct monetary policy free from political interference."

Waller Advocates for a "Policy Shift" at the Federal Reserve

As a lawyer, financier, and former Federal Reserve governor, Waller has signaled clear intentions regarding policy positions.

He indicated plans to promote a "policy shift" at the Federal Reserve, with key initiatives including: enhancing coordination between the Federal Reserve and the Treasury Department, as well as the Trump administration in non-monetary policy areas, and advocating for the reduction of the balance sheet size. He believes that reducing the balance sheet will create space for lowering policy interest rates.

It is worth noting that the Federal Reserve chair holds only one vote in the Federal Open Market Committee (FOMC) rate decisions, being one of 19 policymakers.

According to the current schedule, the Federal Reserve's next meeting is set to be held from June 16 to 17, likely becoming Waller's first monetary policy meeting.