The Fed requires some objection and diversity
Larry Kudlow made some important points.
In this week’s strong column, Kudlow raised concerns that The Federal Reserve has succumbed to bureaucratic groupthink. It looks like everyone is in agreement—12-0 votes on policy decisions are the norm. There’s a lack of objections and transparency. Even those who were appointed by Trump seem to go along with Fed Chairman Jerome Powell’s agenda.
This isn’t a healthy situation. And it’s not something that can last.
However, Trump has a unique chance to disrupt this cycle. He could reshape the Fed with three strategic appointments.
- Bring in a replacement for Adrienne Kluger, whose term ends in January.
- Promote Christopher Waller within the Federal Reserve.
- Fill any resulting vacancies with an economist who values independence.
I’m calling this The Anti-Group Hat Trick.
Waller is a clear choice
This week, when Trump suggested cutting interest rates now and hinted at possibly raising them later if inflation spikes, Christopher Waller echoed this sentiment. He’s not the funniest guy around, but he’s spot-on about this. In a recent CNBC interview, he mentioned: “We could have cut rates back in July and see how inflation responds.”
This illustrates a more relaxed approach to policy-making—something the Fed often claims to value but seldom provides.
Economist Neil Dutta from Renaissance Macro threw his support behind Waller in a note to clients, calling him a flexible thinker.
Waller has earned his stripes. He was a strong advocate for rate hikes in early 2022 and accurately forecasted a softer landing. A memo from July 2022 showed he believed the Fed could tackle inflation without severely impacting employment. Now, with early signs of easing inflation, he seems to be ahead of the curve once again.
He offers what Powell lacks: a solid framework. Dutta pointed out that while the FOMC takes a “wait-and-see” approach, Waller has proactively conducted scenario analysis that everyone claims they want.
An opportunity for fresh independent thinking
Next up in the hat trick is the appointment to succeed Adrienne Kluger, whose term wraps in January. One candidate? Joe Lavorgna. Formerly an economist at NEC, he currently works with the Treasury. He gets the nuances of policy, markets, and communication. During Trump’s first term, he clarified a growth-oriented strategy that balanced low-interest rates with supply-side growth. This isn’t someone who’s tied to academic norms and will challenge the FOMC consensus.
That choice alone could shake up the Fed’s conformity. As Kudlow observed, it’s puzzling why Trump’s picks, like Waller and Bowman, seem hesitant to dissent. One possible reason? Powell seems to discourage opposing opinions. Changing this requires introducing people ready to think differently and supporting them with a chairman who values open dialogue.
Another choice to complete the strategy
Promoting Waller opens up another board position. Technically, that’s Powell. Trump should fill it with another strong economist grounded in reality. Two candidates stand out: Neil Dutta and Stephen Milan.
Dutta is known for being a clear and accurate forecaster on Wall Street. He challenges consensus views when necessary and tends to be right. His focus on policy driven by merit rather than ideology would enhance the Fed’s credibility and intellectual integrity.
Stephen Milan, currently chairing the Council of Economic Advisors, adds real-world policy experience and academic credentials. Having advised the Treasury during Trump’s first term, Milan offers a perspective on trade and inflation, arguing that tariffs don’t necessarily lead to price increases, especially with appropriate supply-side policies. This viewpoint—using trade as a tool for growth—is something that Powell’s Fed appears to lack.
Together, Dutta and Milan represent a much-needed intellectual diversity grounded in real-world experience and diverse thought, contrasting with the Fed’s reliance on theoretical simulations and output gaps.
The path forward
If Trump successfully executes this hat trick (with Waller, Lavorgna, Dutta, or Milan), the Fed won’t just be less of a monolith. It will be more transparent, more anchored to the real economy.
No more 12-0 votes as the norm, and the public won’t be left guessing about Powell’s insights and how they shape his inflation outlook.
In the end, the Fed could be thinking critically once again.
