The Shadow Fed Chair

When Jerome Powell took the stage at Jackson Hole on Friday, his tone carried a dovish shift. The hawkish caution that Powell has displayed over the last 2 years, and this whole summer, was gone. The speech signaled that the Federal Reserve’s priorities are evolving.

Powell noted the current fragility of the labor market, a pivot that aligns closely with the stance of Fed Governor Chris Waller. As recent pressure from Washington heats up, Waller’s dovish outlook has started to gain influence inside the central bank.

For months, Powell has walked a fine line between the Fed’s dual mandate, as progress on inflation stalls and the labor market weakens. Waller has been very open about the risk of the Fed being too restrictive and the need to ease policy to help the labor market. With job growth slowing, wage growth moderating, and unemployment claims creeping higher, Powell appears to be preparing the market for a cut in September.

Friday’s speech in Jackson Hole was also notable, as it was Jerome Powell’s last one as Fed Chair. With mounting political pressure from Washington and the end of his term nearing, the question of succession is becoming harder to ignore. In this environment, Waller’s dovish voice is no longer just an influence, it is emerging as a so called “Shadow Fed Chair.”

While Jackson Hole was a dovish pivot, Powell hasn’t abandoned caution just yet. The Fed still sees inflation on the radar, but the labor market now commands more attention. Rather than a full dovish turn, Jackson Hole suggested a careful pivot.