Why is Professor Waller from the small town the hottest candidate to become the chair of the Fed?

Written by: Ethan, Odaily

On the morning of September 12, Beijing time, the U.S. federal funds rate market released a highly clear signal: the probability of the Federal Reserve cutting interest rates by 25 basis points at this month's meeting has reached 93.9%. After five consecutive pauses, the market has finally welcomed a directional shift in monetary policy. At the same time, another gamble related to the future direction of the Fed over the next two years is quietly advancing: who will succeed Powell as the next chairman of the Federal Reserve?

On the decentralized prediction platform Polymarket, as of the same day, current Federal Reserve Board member Christopher Waller is at the top with a 30% chance, leading the other two "Kevin faction" competitors - Hassett (16%) and Waller (15%). However, the market also retains a more dramatic possibility: the probability that "Trump will not announce a successor by the end of the year" remains the highest at 41%.

This series of data indicates that the market is betting on two directions at the same time: one is the consensus path of interest rate cuts, and the other is the still uncertain contest for monetary steering. And in between these two, Waller's name repeatedly appears in various trading perspectives and policy games.

Why has the market started to "believe in Waller"?

A story of a "non-typical Federal Reserve governor": How did a small-town professor rise to prominence?

Waller's background and experience seem out of place in the Federal Reserve system. He does not come from Ivy League schools, nor has he held significant positions at Goldman Sachs or Morgan Stanley; he was born in a small town in Nebraska with a population of less than 8,000. Starting from Bemidji State University, he obtained a bachelor's degree in economics. In 1985, he earned his Ph.D. in economics from Washington State University and began a long academic career, teaching and conducting research at Indiana University, the University of Kentucky, and the University of Notre Dame for a total of 24 years.

After that, he spent 24 years researching monetary theory in academia, focusing mainly on central bank independence, term limits, and market coordination mechanisms. In 2009, he left campus and joined the Federal Reserve Bank of St. Louis as the director of research, and until 2019, he was nominated by Trump to the Federal Reserve Board. This nomination process was fraught with controversy, and the confirmation process was not smooth, but ultimately on December 3, 2020, the Senate approved his appointment by a narrow margin of 48:47. At 61, he entered the highest decision-making body of the Federal Reserve, making Waller older than most board members, which turned out to be an advantage. He had fewer burdens, owed no favors to Wall Street, and during his time at the Federal Reserve Bank of St. Louis, he learned that the Federal Reserve is not a monolith; differing opinions are not only tolerated but sometimes encouraged.

This approach allows him to have professional judgment while still retaining the freedom of expression, without being categorized as a spokesperson for a particular faction. From Trump's perspective, such individuals may be easier to "use"; while in the eyes of the market, such candidates signify "less uncertainty."

However, in a power transition game intertwined with bureaucratic practices and political will, Waller is not the kind of candidate who is naturally favored by the market. His career trajectory is relatively academic and technical, not known for public rhetoric, nor has he frequently appeared on financial television.

However, such a person has gradually become the frequently mentioned "consensus candidate" in various market tools and political commentary. The reason is that he possesses triple compatibility:

First, the monetary policy style is flexible but non-speculative.

Waller is neither a typical "inflation hawk" nor a monetary expansionist. He advocates that policies should move according to economic conditions: supporting interest rate cuts in 2019 to preempt a recession; favoring rapid interest rate hikes in 2022 to curb inflation; and by 2025, in the context of an economic slowdown and declining inflation, he became one of the first Federal Reserve governors to vote for interest rate cuts. This "non-ideological" policy style stands out as scarce in the currently highly politicized Federal Reserve landscape.

Secondly, the political relationship is clear, and the technical image is very clean.

Waller was nominated by Trump in 2020 to be a member of the Federal Reserve Board and is one of the few monetary policy officials within the Republican establishment who can achieve "technical neutrality" and "political compatibility." He is neither seen as a "Trump loyalist" nor excluded by the party establishment, and this unique middle position allows him greater political maneuvering room in the intense partisan competition.

Unlike the outspoken and heavily partisan Hassert, and in stark contrast to the Wall Street-connected Walsh, Waller exhibits a more purely technocratic trait. He is more easily seen as "a trustworthy professional," and in the context of the highly polarized American politics, this depoliticized, competency-based image actually makes him a solid and widely acceptable nominee.

The third is the attitude towards cryptographic technology, which has a "tolerance" within the system.

Waller is not what you would call a "crypto evangelist," but he is one of the most vocal individuals within the Federal Reserve system on topics such as stablecoins, AI payments, and tokenization. He does not advocate for government-led innovation and opposes CBDCs, but supports private stablecoins as tools for enhancing payment efficiency, suggesting that "the government should build the infrastructure like constructing highways, leaving the rest to the market."

Among traditional finance and digital assets, compared to the other two candidates, he may be the only Fed official who clearly signals "public-private collaboration".

Sense of Smell and Rhythm: He knows when to speak and when to keep quiet.

In July this year, the Federal Reserve held its summer FOMC meeting. Although the market generally expected to "maintain interest rates unchanged," the meeting ultimately witnessed a rare occurrence: Waller and Michelle Bowman, two board members, cast dissenting votes, arguing that interest rates should be cut by 25 basis points immediately.

This kind of "minority veto" is not common within the Federal Reserve. The last time a similar situation occurred was in 1993.

Two weeks before the vote, Waller had already expressed his stance at a central bank seminar at New York University. His public remarks clearly advocated that "current economic data supports a moderate interest rate cut." On the surface, this was a technical "pre-communication"; however, in terms of rhythm, it was a release of political signals. At that time, Trump had a complicated relationship with Powell, previously attacking Powell on Truth Social, demanding "immediate interest rate cuts." Waller's vote and speech did not completely align with the president, nor did they provide cover for Powell. He skillfully positioned himself between "policy adjustment" and "technical independence."

In a highly politicized Federal Reserve environment, the director who knows how to balance and seize the right moments to express their stance appears to have more leadership qualities.

Trump criticized Powell for "poor and incompetent" management of the construction of the Federal Reserve building.

If the upper level rises, how should the crypto market react?

The crypto market's concern over "who will steer the Federal Reserve" has never been mere gossip from the sidelines; it is a triple reflection of policy expectations, market sentiment, and regulatory pathways. If this time it is indeed Waller who takes the chair, then we need to seriously consider how the three types of roles will repricing the future.

Firstly, for stablecoin issuers and the compliant track, it is a large-scale opening of the "regulatory dialogue window"

Waller has repeatedly expressed his opposition to central bank digital currencies (CBDC) in his speeches, stating that they "cannot solve the market failures of the existing payment system," and instead emphasized the advantages of private stablecoins (such as USDC, DAI, PayPal USD, etc.) in improving payment efficiency and cross-border settlement. He stressed that regulation should come from "Congressional legislation rather than agency overreach," and called for "these new technologies not to be stigmatized."

This means that if he becomes chairman, projects like Circle, MakerDAO, and Ethena are expected to enter a "period of institutional path determination," no longer always in the gray area between the SEC and CFTC. More importantly, Waller's idea of "market dominance, government facilitation" may encourage supporting agencies like the Treasury and FDIC to work together to formulate a regulatory framework for stablecoins, promoting the implementation of policies for "licensing, reserve standardization, and information disclosure standardization."

Secondly, for main chain assets like BTC and ETH, it is a "positive sentiment + regulatory easing" medium-term umbrella

Although Waller has not publicly praised Bitcoin or Ethereum, he stated in 2024: "The Federal Reserve should not pick sides in the market." This succinct statement implies that the Fed will not actively "suppress non-dollar systems" as long as they do not touch the bottom line of payment sovereignty and systemic risk.

This will provide a window of "relatively moderate regulatory period" for BTC and ETH. Even if the SEC may still question their securities attributes, if the Federal Reserve does not strongly push for CBDC, does not block crypto payments, and does not intervene in on-chain activities, then the market's speculative sentiment and risk appetite will naturally improve.

In simple terms, during the "Waller era", Bitcoin may not have "official endorsement", but there will be natural benefits from the "regulatory side's easing of pressure."

Thirdly, for developers and DeFi native innovators, it is a rare window for "central bank interlocutors"

Waller has mentioned "AI payments", "smart contracts", and "distributed ledger technology" on several occasions this year, stating: "We may not necessarily adopt these technologies, but we must understand them." This stance is in stark contrast to the attitudes of many regulators who avoid or belittle crypto technology.

This opens up an incredibly important space for developers: they do not have to be accepted, but at least they are no longer excluded.

From Libra to USDC, from EigenLayer to Visa Crypto, generations of developers have found themselves in an awkward "parallel universe" communication with central bank regulators. If Waller takes office, the Federal Reserve may become the first central bank leader "willing to engage in dialogue with DeFi natives."

In other words, crypto developers may welcome the starting moment of "policy negotiation power" and "financial discourse power."

Conclusion: Predicting the pricing direction of trading in the future, the choice of chairman determines the pricing direction.

There is currently no conclusion regarding "Is Waller the new chairman?" However, the market has begun to trade on "how will the future be priced if he becomes chairman." Furthermore, the betting market on him continues to rise significantly at 31%, far surpassing that of his competitors.

At such a critical juncture, it is certain that the expectation of interest rate cuts is moving towards realization; the crypto industry is seeking a policy breakthrough; and US dollar assets are in a triangular game of "increased issuance of US debt - high interest rates - recovery of risk appetite" globally. Waller, as a politically acceptable, policy-predictable, and market-imaginable "successor," naturally becomes the focus of bets.

But perhaps there is another topic worth paying attention to: How will the market readjust these expectations if he ultimately does not become the chairman of the Federal Reserve? And if he really takes the position - then the ranking for the "next generation dollar system" may have just begun.