Written by: Yang Chen, Wall Street Journal

Federal Reserve Chair Waller is facing a rare authority crisis: against the backdrop of hawkish members gradually dominating the FOMC discourse, if he is unable to regain the initiative in meeting communications, he may be forced to follow the majority rather than lead the direction.

According to the Financial Times, sources familiar with Waller's thinking revealed that if inflation data released in the coming weeks is on the high side and market expectations for interest rate hikes further increase, he is prepared to support an interest rate hike at the September FOMC meeting.

The release of this signal is widely seen as Waller's crisis management move under the pressure of public opinion following the July interest rate meeting.

At the same time, these insiders also pointed out that current market-based long-term inflation expectations remain low, indicating that investors still have confidence in the Federal Reserve's commitment to maintaining price stability.

The problem is that this statement comes too late. At the press conference following the July FOMC meeting, Waller declined to make any substantive statements about the U.S. economic situation and was subsequently marginalized by other members who spoke out one after another.

Currently, a total of six Federal Reserve members tend to support interest rate hikes amid persistently rising inflation data. For the market, the absence of the Chair's voice has created a substantial information vacuum, prompting investors to reassess the path of interest rate hikes—the pricing in the short-term interest rate futures market for rate hikes within this year has significantly increased.

Three members dissent, hawkish stance has taken shape

At the July FOMC meeting, three members voted against maintaining rates unchanged, advocating for an immediate increase of the federal funds rate by 25 basis points to a range of 3.75% to 4%.

Cleveland Fed President Beth Hammack believes that the current interest rate level is still not restrictive enough to curb inflation.

Minneapolis Fed President Neel Kashkari is concerned that the combination of supply shocks and rebounding demand will keep inflation persistently high in the long term.

Dallas Fed President Lorie Logan's reasoning is more direct—inflation has been above the 2% target for over five years, with no clear downward path in sight.

Besides the three dissenting members, two other members who voted to maintain rates unchanged clearly stated they are close to leaning towards the rate hike camp.

Federal Reserve Governor Lisa Cook stated that if there are no signs of a sustained cooling in inflation soon, she "is prepared to take action" to raise rates; Philadelphia Fed President Anna Paulson also mentioned that if core inflation remains stubbornly high, she will tend to tighten monetary policy.

Furthermore, Federal Reserve Governor Christopher Waller publicly stated in the past month that the Federal Reserve is at a policy crossroads, and if core inflation heats up again, an interest rate hike will be necessary.

Six votes may determine the outcome, Chair may be passive

The FOMC consists of 12 voting members, and the institution has no procedural arrangement for the Chair to cast a decisive vote in case of a tie. This institutional detail is key to understanding the current power dynamics.

The aforementioned three dissenting members, plus the two members who are clearly close to a rate hike stance, along with Waller himself, total six members who tend to support rate hikes amid persistently rising inflation data.

Once subsequent data triggers collective action from this camp, the decision to raise rates could pass without Waller's endorsement. At that point, Waller will have only two choices left: either join the majority camp or find himself isolated in the minority.

This situation is not without precedent. In August 2005 and June 2007, then Bank of England Governor Lord Mervyn King chose to stand with the hawkish minority in two monetary policy committee meetings, publicly stating that this reflected the value of the committee and the equality of each member's voting rights.

For Waller, the warning from this case is that even central bank governors are not always able to steer the committee's direction.

Market pricing has sent a signal for rate hikes

Another core controversy surrounding Waller's stance is whether the market signals referenced by his team have undergone selective interpretation.

Waller respects financial market pricing and sees the stability of long-term inflation expectations as evidence that policy remains relatively dovish. However, according to the Financial Times, citing interest rate expectation distribution data provided by the Atlanta Fed, the overall market signals are far from that.

At the beginning of 2026, the financial market viewed one interest rate cut this year as the most likely scenario. By the time Waller took office, the market had already regarded one interest rate hike as the baseline scenario, with the average expectation being about two hikes. As of early August, the distribution of interest rate expectations no longer showed a clear mode, but the market's belief in one to two rate hikes this year has become stronger.

The aforementioned changes in the short-term interest rate futures market exist alongside the stability of long-term inflation expectations, with both being integral parts of the same market system and inseparable in interpretation. If the Federal Reserve indeed takes market signals into account in decision-making, the current complete pricing picture points to only one conclusion: interest rate hikes.