Bloomberg Talks: Fed Gov. Waller Talks Dissent, US Fiscal Policy – Episode Summary

Date: October 16, 2025
Host: Council on Foreign Relations Moderator, on Bloomberg Talks
Guest: Christopher Waller, Member of the Board of Governors, Federal Reserve

Brief Overview

This episode features an in-depth conversation with Federal Reserve Governor Christopher Waller, focusing on central bank communication, dissent within the Fed, labor market complexities, the evolving nature of monetary policy, the real meaning of the neutral rate, fiscal policy pressures, and the long-term implications of technology and inequality on the American economy. The conversation, held at the Council on Foreign Relations, traverses Waller’s personal views and experiences, delves into the structural design and practical challenges of the Fed, and reflects on the nuance required in today’s rapidly changing economic environment.

Key Discussion Points and Insights

1. The Fed’s Communication and Dissent

• Diversity of Viewpoints:
  • Waller rejects the idea that unanimity at the Fed indicates groupthink, emphasizing that public speeches and discussions reflect differing opinions.

    "All the public speaking, the speeches, are the way for us to show a diversity of opinions and thought about the direction of policy. ... It's actually signaling where people stand when you come to the meeting." – Christopher Waller [00:44]

• Value of Dissent:
  • Dissent is a part of healthy policy debate, not a sign of division or lack of confidence in leadership.

    "I personally think there's nothing wrong with dissents. ... That's the whole point is to say, look, I'm on this committee to have my own independent view and make these points." – Christopher Waller [02:14]

  • He references his own dissent at the July meeting as evidence of constructive disagreement.

2. Understanding Today's Labor Market Data

• Masking of Declining Demand:
  • Waller posits that declining labor supply (primarily due to reduced immigration) is "masking the weakness of labor demand," suggesting the underlying unemployment situation is more fragile than it appears.

    "All that's happening with all the labor supply stuff is it's kind of masking the weakness of labor demand." – Christopher Waller [03:51]

• Implications for Rate Setting:
  • If not for falling labor supply, rate cuts would likely be more aggressively on the table.

3. Rate Cuts, Neutral Rate (R), and Economic Division*

• What is Neutral?
  • Waller explains the neutral rate as the tipping point between stimulating and contracting the economy, currently seen as around 3%. The Fed's current policy rate is understood as still restrictive.
• Technological and Regional Divides:
  • With reference to "two Americas," Waller acknowledges differing impacts of monetary policy on high- versus low-income groups.

    "Upper income groups, everything's fine, wealth is booming ... Low income households, they can't pass [tariffs] through, they'll walk out the door. ... We have ... this dichotomy in the economy." – Christopher Waller [07:19]

4. The Fed’s Balance Sheet and Quantitative Policy

• End of Quantitative Tightening:
  • The Fed is nearing an "ample reserves" framework, suggesting that the era of rapid balance sheet contraction is winding down.

    "We're about at that point, we had an excessively large balance sheet due to quantitative easing. ... We've been on a quantitative tightening policy since May of 22. And we're basically back to where we think we should be just for ample [reserves]." – Christopher Waller [09:16]

• Reserves Manage Stability:
  • Sufficient liquidity is essential so banks aren't "scrambling around looking for nickels and dimes in the couch." [09:16]

5. Wealth Effect and Consumption

• Disproportionate Impact:
  • The "wealth effect" mostly benefits higher-income Americans, with a strong and persistent increase in wealth driving some of recent consumption growth.

    "For every $1 of wealth [increase] ... your consumption should go up by 2 to 3%." – Christopher Waller [10:49]

  • This effect requires wealth increases to be permanent, not just temporary.

6. Transparency and the 'Dots Plot'

• Questioning the SEP:
  • Waller questions the utility of the Fed’s "dot plot" (Summary of Economic Projections) and advocates for focusing on the nearer term rather than detailed long-run forecasts.

    "I personally have doubts about whether we should have the SEP at all. ... Just the best we can do is 6, 12, maybe 18 months out." – Christopher Waller [11:56], [12:47]

7. Political Pressures and Central Bank Independence

• On Administrative 'Bashing':
  • Waller reflects on his earlier academic work about White House pressure on the Fed, noting that criticism of the central bank "has been done forever," not unique to current administrations.

    "I just go to work and I try to do my job the best I can. ... You can always look at something and interpret it as political when it's not." – Christopher Waller [16:26]

8. Structural Changes in Global Trade and Agriculture

• Soybean Farmers and Trade:
  • Waller shares firsthand experience from his time at the St. Louis Fed, observing that once China shifted soybean purchases away from the US, trade did not recover even after tariffs subsided.

    "Just because a supply chain gets disrupted and then you reverse something, it doesn't necessarily mean it comes back. Once it's changed, it's changed." – Christopher Waller [18:29]

9. Fiscal Deficits and the Value of the Dollar

• Long-Term Unsustainability:
  • Waller avoids direct engagement but notes persistent large deficits are not sustainable. The policy rate is influenced over the long run by the interplay of the demand and supply for US Treasuries.

    "When you're running 6% deficits, 3% primary deficits, we know that that's just not sustainable in the long run. ... At some point, if that reverses and the supply starts exceeding demand ... yield's going to go up." – Christopher Waller [20:29]

10. AI, Technological Change, and Labor Markets

• Short vs. Long-Term Impact:
  • Waller notes that while AI may create short-term disruptions ("drop in level" of jobs), historical precedent shows employment eventually recovers—with new, unforeseen jobs emerging.

    "Usually there's ... a gap where ... jobs are slowly going away, new ones are coming on. This time, ... it's happening so fast that [old] jobs go away faster than we can figure out what the new jobs are." – Christopher Waller [22:24]

• Diffusion of Gains:
  • Technological gains have historically spread throughout the economy, not just consolidating at the top.

    "The history of technology is that they do diffuse." – Christopher Waller [24:28]

  • He points to examples from automotive to IT revolutions.

11. Inequality, Employment, and Policy Limits

• Inequality as a Policy Challenge:
  • Despite acknowledging growing inequality, Waller stresses the Fed has limited tools to specifically address wealth or income gaps.

    "I have one instrument. I can't deal with inequality. It's really not in my toolkit. ... I have to look at the aggregate." – Christopher Waller [27:53]

12. Competitiveness, Tariffs, and U.S. Manufacturing

• Reshoring Barriers:
  • Waller doubts that even very high tariffs alone can bring manufacturing back to the US, stating U.S. cost structures may not compete with global alternatives.

    "Even if it's 100% tariff, it's still cheaper to manufacture in Taiwan or Vietnam or Japan or Korea or China than in the U.S." – Chris Thomas [28:59, as relayed by Chris Thomas; see response from Waller same segment]

  • He underscores shifting U.S. labor preferences toward services.

13. Neutral Rate Process and Debate on the 2% Target

• Gradualism in Rate Setting:
  • Moving to neutrality is a process, not a one-time event, especially with inflation still above target.

    "It's really the process ... bring it back towards neutral. ... Doesn't mean you go below." – Christopher Waller [31:00]

• 2% Inflation Target:
  • Waller favors a precise target for accountability but acknowledges that a wider band may ultimately be more practical.

    "I like 2% because it holds me accountable. ... That's the danger with the 2%. It's so precise that if you don't hit it, you start saying you're failing." – Christopher Waller [34:24]

14. The Federal Reserve’s Structure and Regional Voices

• Benefits of Decentralization:
  • Waller praises the regional structure of the Fed as a check against East Coast-centric or political dominance, offering grassroots engagement and a diversity of viewpoints.

    "This is one of the brilliant aspects of the design of the Fed. ... You need some political accountability in D.C. but you want to have a lot of this outside of D.C. ... representing all the country in the decision making process, just not a few handful of elites." – Christopher Waller [36:08]

• Encouraging Dissent:
  • As Chairman, Waller would encourage more open dissent, seeing value in closer votes and richer debate.

    "I would encourage dissents. ... That was the idea of the structure, was you put 19 members so you get this diversity of views from around the country." – Christopher Waller [37:51]

Notable Quotes (with Timestamps)

• On Diversity of Opinions:
  • "All the public speaking, the speeches, are the way for us to show a diversity of opinions and thought about the direction of policy." – Waller [00:44]
• On Dissent:
  • "I personally think there's nothing wrong with dissents. ... I'm on this committee to have my own independent view and make these points." – Waller [02:14]
• On Labor Market Masking:
  • "All that's happening with all the labor supply stuff is it's kind of masking the weakness of labor demand." – Waller [03:51]
• On Neutral Rate:
  • "For me, R Star is a policy rate ... the real R Star that I should be [looking at is] the return on safe liquid government debt." – Waller [07:19]
• On Wealth Effect:
  • "That's what we mean by the wealth effect ... for every dollar in wealth, that's what we mean by the wealth effect." – Waller [10:49]
• On SEP/Dot Plot:
  • "I personally have doubts about whether we should have the SEP at all. ... Best we can do is 6:12, maybe 18 months out." – Waller [11:56], [12:47]
• On Bashing & Central Bank Independence:
  • "This has been done forever. ... I just go to work and I try to do my job the best I can." – Waller [16:26]
• On Supply Chains:
  • "Once it's changed, it's changed. So yeah, soybean farmers are typically getting hammered." – Waller [18:29]
• On Fiscal Deficits:
  • "We know that that's just not sustainable in the long run. ... At some point, if ... supply starts exceeding demand, ... yield's going to go up." – Waller [20:29]
• On AI & Technology:
  • "It's happening so fast that jobs go away faster than we can figure out what the new jobs are. The new jobs will show up. ... It's just the timing may be a little more disruptive." – Waller [22:24]
• On Inequality:
  • "I have one instrument. I can't deal with inequality. It's really not in my toolkit. ... I have to look at the aggregate." – Waller [27:53]
• On Regional Fed Structure:
  • "You need some political accountability in D.C. but you want to have a lot of this outside of D.C. ... representing all the country." – Waller [36:08]
• On Dissent and Debate:
  • "I would encourage dissents. ... That was the idea of the structure, was you put 19 members so you get this diversity of views from around the country." – Waller [37:51]

Timestamps of Important Segments

• [00:44] – Fed communication and groupthink vs. genuine debate
• [02:14] – Dissent at the Fed: historical context and personal example
• [03:51] – Is today's unemployment rate masking weaker underlying labor demand?
• [05:21] – The complexity of interpreting unemployment and labor supply
• [06:23] – Defining 'neutral' and implications for rate cuts
• [07:19] – The challenge of monetary policy in a divided economy; the meaning of R*
• [09:16] – Update on the Fed's balance sheet, reserves, and quantitative policy
• [10:49] – The 'wealth effect' explained and its modern impact
• [11:56] – Transparency debate: should the FOMC keep the dot plot?
• [14:45] – Political pressure, central bank independence, bashing, and ex ante/ex post policy
• [18:29] – Structural trade shifts: soybeans as a case study
• [20:29] – How fiscal deficits and the value of the dollar affect Fed thinking
• [22:24] – AI: risk, productivity, labor markets, and the unprecedented speed of technological change
• [24:28] – Do technological advancements ultimately spread their gains?
• [27:53] – Employment, inequality, and the limits of monetary policy tools
• [28:59] – Global competitiveness, tariffs, and U.S. manufacturing viability
• [31:00] – What 'moving to neutral' really means for policy
• [33:08] – Debate over the 2% inflation target versus a range
• [36:08] – How the Fed’s structure represents and benefits all of America
• [37:51] – Encouraging open dissent as a core mandate

Conclusion

Governor Christopher Waller provides a nuanced, frank, and occasionally humorous look inside the workings and thinking of the Federal Reserve as it navigates a complex economic landscape. The conversation captures deep economic insights, the political realities facing central bankers, and the practical constraints of monetary policy. Waller’s focus on diversity of thought, transparency, and readiness to dissent point to a central bank committed to responsible adaptation in extraordinary times.