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St. Louis Fed’s Waller Joins Bullard in a Dovish Duo at the Fed

EconomyJul 03, 2019 09:30AM ET
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© Bloomberg. Christopher Waller Photographer: David Paul Morris/Bloomberg

(Bloomberg) -- After St. Louis Federal Reserve President James Bullard told the White House he wasn’t interested in a Fed governor’s job in Washington, President Donald Trump turned to someone very similar.

Christopher Waller, who Trump named Tuesday as a nominee for one of two open board seats, is research director at the St. Louis Fed and was once Bullard’s teacher and mentor. Waller, 60, helped develop Bullard’s commitment to low interest rates and shares his view of the past three years that policy is in a new regime -- where higher interest rates aren’t needed.

“We didn’t see any overheating in the economy coming, so the question was: why are we raising rates?’’ Waller said in an interview June 25 with Bloomberg Radio’s Kathleen Hays. “We didn’t see any reason to raise rates just for the sake of raising rates.’’

Trump announced Tuesday that he’s selecting Waller and conservative economist Judy Shelton for the two vacant Fed governor posts. Both are likely to support the president’s repeated calls for lower interest rates.

Trump has chastised Fed Chairman Jerome Powell for raising rates last year too much and too fast. The criticism veers from decades of caution in the White House about making public comments on monetary policy, out of respect for the independence of the central bank.

It’s a topic Waller knows well. He’s published dozens of articles in academic journals and many of his most widely-cited works deal with the politics of central-bank independence. He’s called it a "key tool" in ensuring that the government won’t misuse monetary policy for short-term political gain.

In a 1992 paper, he built a model “to analyze the appointment of central bankers in a two-party political system,” finding that “the party in power will appoint partisans early on but later appointments will be increasingly moderate in their views concerning monetary policy.”

Dissenting Voices

Waller’s boss, Bullard, was the lone vote on the Federal Open Market Committee in June that favored a cut in interest rates. It was the first dissent since Chair Powell’s tenure began in February 2018.

Waller isn’t afraid to present an opposing view either, said Michael Gapen, chief U.S. economist at Barclays (LON:BARC), who also studied under Waller.

“Chris is not the type to withhold his views, he has strong views, and he will put them forward,’’ Gapen said. “He will also know where the strengths and weaknesses of the system lie. He can be a credible, critical voice.”

Waller and Bullard’s ties stretch back to when Waller was an economist at Indiana University. There he mentored Bullard, who was studying in the 1980s to get his Ph.D. When Bullard was named St. Louis Fed president in 2008, he tapped Waller -- then at the University of Notre Dame -- to be his research director.

Waller acknowledged in a 2017 interview on Bloomberg Radio that it was unusual moving from teacher to employee.

“When you are a professor, be nice to your students – you may have to work for them someday,’’ he said. “We have had roughly 30 years of professional relationships and friendships and it makes it very easy to discuss – he is my boss, but he listens to me.’’

Bullard and Waller declined to comment on the nomination.

Policy Views

The two share a dislike of Fed orthodoxy, including the idea that a low unemployment rate is likely to be associated with surging inflation.

“We don’t buy into the Phillips curve story that low unemployment causes inflation,’’ Waller said June 25, referring to the academic theory that the Fed has used as some policy makers worry about unemployment overshooting its estimate of full employment.

While economist Marvin Goodfriend ran into opposition to his nomination partly because of his research proposing negative interest rates as a possible option, Waller has written strongly in opposition to negative rates and compared them to a tax. “None of this sounds very stimulative for consumer spending. But then, no tax ever is,’’ Waller wrote in a posting on the St. Louis Fed website in 2016.

After moving to St. Louis, he continued to teach an occasional class at Notre Dame, sometimes attending football games during fall weekends. He continues to have a faculty page and photo listed on the university website, with a university email address.

His strong reputation in central bank research should make him “relatively uncontroversial” as “he is clearly qualified,” Roberto Perli, a partner at Cornerstone Macro in Washington and former Fed economist, said on Bloomberg Television Tuesday.

Waller was “a key input into Bullard’s policy views over the years,’’ said Derek Tang, an economist at the Washington policy research firm LH Meyer Inc. “This is a neat way for the White House to amplify the dovish tilt of the St. Louis Fed more widely on the FOMC.”

St. Louis Fed’s Waller Joins Bullard in a Dovish Duo at the Fed

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Comments (1)
Andrew carson
Andrew carson Jul 03, 2019 9:34AM ET
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Just get rid of Powell and we're all set.
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