Prediction markets bet on Waller as the Fed chair succession enters a critical moment

Original Title: "The Moneybags of U.S. Stocks & Crypto: He Might Decide the Future"

Original Author: David, Deep Tide TechFlow

There are still 9 months left in Powell's term, and the discussion about who will succeed as the next Federal Reserve Chair has reached a fever pitch.

The Federal Reserve Chair may be the most powerful economic position in the world. A single word from him can cause violent swings in capital markets, and one decision can influence the flow of trillions of dollars. Your mortgage rate, stock market returns, and even the volatility of crypto assets are all closely tied to the decisions made in this position.

So who is most likely to be the next Chair? The market is gradually giving its own answer.

On August 7, on the prediction market Kalshi, Federal Reserve Governor Christopher Waller's odds surged from 16% the previous day to over 50%, surpassing all other competitors for the first time. Although the odds fluctuated afterward, Waller has consistently maintained the lead.

According to the latest data, Polymarket shows Waller still leading with a 35% probability, higher than other popular contenders Kevin Hassett and Kevin Warsh, who each have 17%.

Why has the market suddenly become bullish on this 65-year-old current Fed Governor?

A recent Bloomberg report may provide a clue: Trump's advisory team believes Waller is "willing to make policy based on forecasts rather than current data" and "has a deep understanding of the Federal Reserve system."

More importantly, Waller was nominated by Trump in 2020 to join the Federal Reserve. And at the July 30 FOMC meeting, Waller himself did something particularly eye-catching:

He, along with fellow Governor Michelle Bowman, cast a dissenting vote, believing the Fed should cut rates by 25 basis points. This was the first time since 1993 that two Governors simultaneously opposed the decision to keep rates unchanged.

What Trump needs now is a Fed Chair who can both push for rate cuts and not be seen by the market as a White House puppet; from this perspective, Waller seems to fit the bill perfectly.

Political Acumen: Choosing the Right Moment to Take a Stand

To understand Waller, we have to start with this dissenting vote.

First, some background: The Federal Reserve's Federal Open Market Committee (FOMC) meets eight times a year to decide the U.S. benchmark interest rate. This rate is the main valve of the U.S. economy, determining the cost of borrowing between banks and, in turn, affecting all loan rates.

Participants must vote collectively on interest rate changes. For decades, these votes have been almost unanimously passed. In Fed culture, casting a public dissenting vote is seen as a challenge to the Chair's authority.

The July 30, 2025 FOMC meeting was particularly sensitive.

The Fed had kept rates unchanged at 4.25%-4.5% for five consecutive meetings. Meanwhile, Trump was attacking Powell daily on Truth Social, calling him "too late" and "stupid," demanding immediate rate cuts to stimulate the economy.

Just two weeks before this meeting, on July 17, Waller gave a speech at the New York University Money Market Dealers Association, with very sharp language:

"I used to tell my new colleagues, a speech is not a murder mystery novel --- just tell the audience who the killer is, just tell them the point."

The point of this speech, of course, was that he believed the FOMC should cut rates by 25 basis points; and the "killer" was projected onto the Federal Reserve itself.

Publicly taking a stance is generally not in line with the code of conduct for central bank officials. But perhaps this was a carefully chosen moment by Waller for political maneuvering.

By expressing his views in advance, it also made his dissenting vote at the FOMC formal meeting two weeks later appear to be a result of long-term professional judgment, rather than succumbing to political pressure.

On July 30, when Waller and Bowman voted against keeping rates unchanged, it was indeed the first time since 1993 that two Governors had simultaneously dissented, which naturally drew attention.

The signal the market read was that there were rational dissenting voices within the Fed; but from the perspective of Trump and his team, this looked more like Waller taking a stand and choosing sides.

Even more cleverly, Waller also expressed his views on current tariff policy: "Tariffs are a one-time increase in price levels and will not cause sustained inflation." This statement became his signature argument quoted by various media outlets.

To translate, the subtext of this statement is:

Trump's tariffs do indeed push up prices, but only temporarily. So rate cuts shouldn't be ruled out just because of tariffs. Clearly, Waller's view neither criticizes Trump's tariff policy nor provides an economic basis for rate cuts.

Using an economic theory to solve a political problem; choosing the right moment to express a rate-cut stance consistent with the President.

Betting Against a Former Treasury Secretary: Predicting a Soft Landing

If casting a dissenting vote showcased Waller's political acumen, then correctly predicting the economic trajectory demonstrated his solid professional skills.

First, some background.

In June 2022, U.S. inflation reached 9.1%, a 40-year high. What does this mean?

If you deposited $10,000 at the beginning of the year, by the end of the year your purchasing power would be only $9,000. Gasoline prices doubled, and eggs rose from $2 to $5.

The Fed faced a tough choice. To lower inflation, it had to raise rates. Higher rates make loans more expensive, businesses are less willing to borrow and expand, consumers are less willing to take out loans to buy homes and cars, the economy cools, and inflation falls.

But the problem is, too strong a dose can cause trouble. Historically, every time the Fed raised rates sharply, it triggered a recession.

At this time, an unusual public debate broke out in the economics community.

On one side were three heavyweight economists: former Treasury Secretary under Clinton Larry Summers, former IMF Chief Economist Olivier Blanchard, and Harvard economist Jason Furman.

In July, they published research arguing that the Fed could not control inflation without causing a "painful" spike in unemployment. To bring inflation down, unemployment must rise. This is an economic law, like a law of physics.

Summers' team's calculation was that to bring inflation down from 9% to 2%, the unemployment rate would have to rise to at least 6%. This would mean millions losing their jobs.

But Waller disagreed.

On July 29, he and Fed economist Andrew Figura published a paper, "How Likely Is a Soft Landing? What Can the Beveridge Curve Tell Us?", directly challenging Summers' team's conclusions.

Waller's core view was that this time was different because the pandemic had caused unprecedented distortions in the labor market.

Many people retired early, and many were unwilling to work due to the pandemic. This led to artificially high job vacancies; it wasn't that the economy was so hot that everyone was hiring, but rather that fewer people were willing to work.

The paper concluded: a soft landing is a "reasonable outcome," and the U.S. could bring inflation back to normal with only a slight rise in unemployment.

On August 1, Summers and Blanchard quickly responded, saying Waller's paper "contained misleading conclusions, errors, and factual mistakes."

Central bank officials usually speak cautiously, and academics are usually polite. But this time, both sides spoke harshly, as if defending the correctness of their own economic theories.

The market, of course, sided with Summers. After all, he was a former Treasury Secretary, and Blanchard was a former IMF Chief Economist. Waller was just a Fed Governor.

The next 18 months became a public test and bet.

By the end of 2022, commodity prices began to fall. In early 2023, supply chain pressures eased. The Fed did indeed raise rates sharply, from near 0% all the way up to 5.5%.

Everyone was waiting to see if a wave of unemployment would come, but the result was surprising.

By the end of 2024, inflation had fallen below 3%, while unemployment was only 3.9%. There was no recession and no mass layoffs.

In September 2024, Waller and Figura updated their research paper, even adding an "s" to the title—from "Soft Landing" to "Soft Landings"—implying this was not a fluke, but repeatable.

Waller won this bet.

This academic showdown also proved that Waller has the ability to challenge authority and make independent judgments; for Trump's team, this is even more valuable. What they see is someone who dares to challenge the mainstream and believes in the resilience of the U.S. economy.

Midwestern Scholar: Breaking into Washington

Waller is different from most people who serve at the Fed, with a unique career path.

Born in 1959 in Nebraska City, Nebraska, a small town of only 7,000 people, Waller spent his childhood in South Dakota and Minnesota—Midwestern agricultural states far from the financial centers of the East Coast.

The seats on the Fed Board are usually occupied by a certain type of person: Ivy League graduates, Wall Street experience, or government service in Washington. They often speak the same language and share similar worldviews.

Waller clearly does not belong to that group.

Waller started at Bemidji State University, where he earned a bachelor's degree in economics; you may never have heard of this place in northern Minnesota, where winter temperatures can reach minus 30 degrees.

Such an environment may make it easier to see the real America, and those ordinary people living in small towns, taking out loans to buy homes and cars, worrying about jobs and prices.

In 1985, Waller earned a PhD in economics from Washington State University and began a long academic career.

First Indiana University, then the University of Kentucky, and finally Notre Dame; for 24 years, he taught and did research. Waller's research focus was monetary theory, one of the most abstract branches of economics.

This kind of research obviously won't get you on TV or make you a celebrity economist, but it may come in handy at critical moments. In 1996, Waller co-authored a paper, "Central Bank Independence, Economic Behavior, and Optimal Term Length."

This paper studied a practical and timely question: How long should the term of a central bank governor be?

The core finding: If the term is too short (e.g., 2 years), the central bank governor will succumb to political pressure because he wants to be reappointed. If the term is too long (e.g., 14 years), he may become detached from reality and inflexible.

Twenty-five years later, this theoretical paper became a practical guide.

In 2020, when Trump publicly criticized the Fed and demanded rate cuts, Waller, who had just joined the Fed, faced a choice: fully comply or fully resist?

He chose a third path: support rate cuts at certain times, such as casting a dissenting vote in July 2025; but the reason must be professional, not simply because the President wants rate cuts.

This subtle sense of balance—neither completely independent to the point of ignoring political reality nor so dependent as to lose professional judgment—is exactly what he studied more than 20 years ago.

In other words, Waller's navigation of the Fed is not walking a tightrope by instinct, but based on a set of academically validated balancing theories.

Before joining the Fed, Waller also "leveled up" in the "training grounds."

The Fed is not a single institution but consists of the Board in Washington and 12 regional Feds. Each regional Fed has its own research department and policy leanings.

In 2009, at age 50, Waller left academia to join the St. Louis Fed as Director of Research, a position he held for 11 years. Waller managed a research department of over 100 people, with daily tasks including analyzing economic data, writing policy reports, and preparing for FOMC meetings.

What truly changed his career trajectory was being nominated by Trump in 2019 to the Fed Board.

This nomination itself was controversial. Waller's confirmation process was also bumpy: Democratic senators questioned his independence, since he was a Trump nominee. Republican senators worried he was too academic and not "loyal" enough.

On December 3, 2020, the Senate confirmed his appointment by a narrow 48:47 margin, one of the closest votes in recent years. Entering the Fed's top decision-making body at age 61, Waller was older than most Governors. But this turned out to be an advantage.

Most Fed Governors follow a predictable path: elite school → Wall Street/government → Fed. They enter the power center in their 40s, with enough time to build networks and learn the rules of the game.

Waller is different. He spent 24 years in academia, 11 years at a regional Fed, and only reached Washington at 61.

Compared to other Governors, Waller has fewer burdens and owes no favors to Wall Street; having worked at the St. Louis Fed, he knows the Fed is not monolithic—different voices are not only tolerated but sometimes encouraged.

When Trump's team evaluates who can succeed Powell, these may be exactly the qualities they see:

Someone old enough, with nothing left to prove; someone with independent judgment, but who knows how to express it within the system.

Bullish for Crypto?

If Waller really becomes Fed Chair, what benefits might it bring?

The market's first reaction is that Waller will cut rates. After all, he cast a dissenting vote in July supporting a rate cut. Trump has also consistently called for lower rates.

But a closer look at his record shows a more complex picture.

In 2019, when the economy was strong, Waller supported rate cuts. In 2022, when inflation soared, he supported aggressive rate hikes. In 2025, he turned back to supporting rate cuts...

His principle seems clear: loosen when needed, tighten when needed. If he becomes Chair, rate policy may become more "flexible," not mechanically following Trump's rules, but quickly adjusting based on economic conditions.

But Waller's real difference may not be in traditional monetary policy, but in how he views new things like crypto and stablecoins.

On August 20, when asked how the Fed should respond to financial innovation, Waller said, "There is absolutely no need to worry about digital asset innovation"; at a stablecoin conference in California this February, he said stablecoins are "digital assets designed to maintain stable value relative to national currencies."

Note, he emphasizes the relationship with national currencies, not something independent of the monetary system. This difference in perspective could lead to a fundamental policy shift.

Currently, the U.S. attitude toward digital assets is defensive—concerned about money laundering, financial stability, and investor protection; the focus of regulation is "risk control."

Waller clearly opposes central bank digital currencies, believing "it's unclear what market failure in the U.S. payment system it would solve," but he supports another path: allowing private stablecoins to innovate and take on the function of a digital dollar.

But all these visions depend on Waller's ability to withstand pressure.

He has not experienced a true financial crisis. When Lehman collapsed in 2008, he was teaching. When FTX went bankrupt in 2022, he had just joined the Fed and was not yet a core decision-maker.

Moving from Governor to Chair is not just a change in position. Governors can express personal views; every word from the Chair can shake the market.

When the stability of the entire financial system rests on your shoulders, "innovation" and "exploration" may become luxuries. Whether this is truly bullish for crypto remains to be seen.