Fed Governor Christopher Waller visited Auburn University on Friday, and I had the unusual opportunity not only to hear his public talk but also to have lunch with him and a few Auburn faculty members beforehand. While I pay more attention to the Fed than the average person, my exposure to it was limited to their public talks, announcements, and press conferences. At the open-door lunch, I got the chance to sit down with a Fed official and ask away. It was a strange situation for me: as much as I wanted to be combative, I knew that I had to be polite so he’d keep answering my questions with as much honesty as a central banker can muster.
There was a big contrast in his informal remarks over lunch versus his public talk. Over lunch, Waller was more candid, more dismissive, and rough around the edges. In the public setting, he cleaned up the language and adopted the more measured tone one would expect from a central banker. I could immediately tell when he switched on the Fedspeak at the beginning of his talk. There was nothing really noteworthy about his talk—it was a boring boilerplate speech from a Fed official. What was noteworthy was the contrast: the Fed projects confidence and honesty in public, but cannot withstand the slightest bit of inquiry without evasion, rhetorical tricks, and outright contradiction.
Coincidentally, Waller gave his talk in the same auditorium on Auburn’s campus that the Mises Institute has hosted talks open to the public. I’ve seen this room (and a room with the same capacity on the opposite side of the building) filled to the brim so people could hear Judge Andrew Napolitano or Tom Woods give a talk. For a Fed governor, however, the room was more than half empty, and the students who attended only came for some extra credit in their classes. Afterwards, there was a line of students, not to talk with Waller but to sign the attendance sheet in the back of the lecture hall.
At lunch, I noticed a pattern. When possible, he would recite the typical Fed line on some issue. Otherwise, he would be dismissive, saying things like “I don’t care,” “that doesn’t matter,” “it’s worthless,” or “what’s the point?” It was probably a strategy to get questioners off some idea he didn’t want to discuss. Either that or he is a committed nihilist.
When I asked about the Fed’s gold certificates and whether there is any real point to them, especially since they are non-marketable and non-redeemable, he said there is not. In his telling, the certificates are just an institutional relic, a hangover of history that serves no real purpose today. He was broadly dismissive of gold itself and recited (without citing) the argument from Warren Buffett, that gold is something we dig out of the ground only to bury again in vaults. Gold is pointless in Waller’s eyes.
On the question of why some foreign central banks have been increasing their gold holdings (Mark Thornton also asked about this in the Q&A after Waller’s public speech), Waller said that there may be some declining trust in US Treasuries and that these foreign central banks want something liquid that they can sell in an effort to keep their currency’s exchange rate somewhat pegged to the dollar. That answer was interesting in its own right. Even as he treated gold as useless from the standpoint of the Fed, he acknowledged that other central banks value it precisely because their confidence in dollar assets is waning.
When I asked about why the Fed targets two percent price inflation, at first he fumbled around talking about issues with measuring inflation. I didn’t see how that was relevant to my question, but then his memory was struck by the official line and he recited it: deflation is associated with bad times, the Fed does not want deflation, and therefore a positive inflation target is desirable. To his credit, he acknowledged that deflation is not necessarily a cause of recessions, but he did not elaborate on this. His argument amounted to treating a correlation as causation. Oops!
Then he said something to the effect of “we tax everything else, so why not money?” This is unlike anything I’ve ever heard from a central banker. It shows that, behind all the flimsy technocratic justifications for the two percent inflation target, Fed officials know it is government expropriation. The government desires to spend much more than it can tax and borrow cheaply, and so it relies on the central bank to impose the more subtle inflation tax.
Questions about the banking system exposed an area he had no interest in entertaining. When asked whether anybody at the Fed is thinking seriously about concentration in the banking system and whether Fed policy may be contributing to it, his answer was no. He said he does not care about the number of banks.
This led me to a follow-up question: what if everybody banks directly with the Fed through a central bank digital currency (CBDC)? Thankfully, Waller was very critical of CBDCs. He said there is no problem that a CBDC would solve. When I pressed further on whether a CBDC could be used to implement negative nominal interest rates, he rejected the idea and said the central bank should never impose negative nominal rates. He regards them as an explicit tax beyond the legitimate scope of the Fed. While I agree, there is a strange tension: he could recognize negative rates as an illegitimate tax while still defending a regime built around continuous depreciation of money’s purchasing power, which he had previously characterized as a tax.
I asked about why Wyoming-chartered Custodia Bank was denied access to a master account. Custodia Bank was founded by Caitlin Long—long-time friend of the Mises Institute—to be a crypto-friendly full-reserve bank. Unfortunately, any bank in the US needs access to the Fed’s payments systems to move dollars around quickly and without a middleman, but Custodia was denied access by the Fed. The litigation over this decision is ongoing.
Waller had plenty to say about Custodia, and none of it was charitable. He was highly dismissive (again), arguing that although the Fed can grant master accounts only to eligible depository institutions, Custodia’s designation as such by the state of Wyoming was dubious. He characterized Custodia Bank as scammy, while in the same breath saying that Kraken—a crypto firm that also happens to be based in Wyoming—was granted access to the Fed’s payments systems. Why one but not the other? Waller didn’t say. Waller did mention that he is working on the rules associated with “skinny” master accounts, ones that only grant access to the payments systems without access to the Fed’s discount window or other facilities.
I asked about the MMT proposal for the US Mint to issue a platinum coin with a trillion-dollar face value. Waller’s reaction was not subtle. He dismissed the idea outright (“What’s the point?”). I told him that MMTers say it would be a way around debt ceiling standoffs, to which Waller shrugged.
He evaded by launching into a tirade against the MMT crowd, calling them “idiots” and pointing to the inflation since 2020. This, according to Waller, has disproven the MMT notion that money creation can painlessly solve real economic problems. There is a certain irony here, especially since it was the Fed, not MMTers, who pumped in trillions of new dollars in the wake of the covid crisis.
More irony, or maybe just plain doublespeak: at another point during lunch he dismissed the idea that the money supply matters at all. According to him, interest rates are all that matter. But when attacking MMT, he fell back on the very intuitive idea that large-scale, money-financed spending results in excessive price inflation. Whatever one thinks of MMT, his criticism of it sat awkwardly beside his role as a central banker and his remarks that the money supply doesn’t matter. When another at the lunch table pressed him on this, he fumbled his words again, but what meaning I could detect was that he thinks money supply changes matter only when they are big.
There was less evasion in discussion of the Fed’s mortgage-backed securities purchases since 2009. When I asked what he thought of the Fed’s MBS program, Waller implied that the size of the program was a mistake and that the Fed should get out of the mortgage business. He said it caused “credit distortion” and favored one particular sector. The MBS program was not some side issue. It was a major intervention into credit allocation, housing finance, and the structure of the Fed’s own balance sheet. I count it as an admission that the Fed’s reach extended well beyond anything that could plausibly be defended as dual-mandate-oriented monetary policy. Apparently Fed officials have decided that defending the program has become too difficult.
On the “ample reserves” regime, Waller moved into a more abstract discussion of scarcity itself. Using the classic air-in-the-room as an example of a superabundant good (something I also do in my principles-level classes), he argued that we should never try to create scarcity. The implication was that an ample reserves regime, created not by banks suddenly deciding to be more responsible with depositors’ money but by massive bouts of quantitative easing and a big shift in the Fed’s monetary policy tools, is a solution to the economic problem of scarcity (huh?). To me, this reflects a complete misunderstanding of money, and it implicates him in the same errors he accused the MMTers of committing. We can’t make more stuff (alleviate scarcity) by printing money.
I asked about the nature of the fed funds market. He agreed that the fed funds market is defunct. The only reason the Fed still explicitly targets the federal funds rate, he said, is that this is the only rate the FOMC is statutorily authorized to target, though the Fed has discussed other rates it might target instead. That answer offered a small but revealing admission: the central reference point of modern US monetary policy, the fed funds rate, is now just an artifact of the bygone days in which the Fed implemented policy through the market for reserves. The Fed continues to organize its communications and decisions around a market that, by Waller’s own account, means nothing.
At lunch, one of the Auburn professors asked about why we should accept central planning for money, credit, and banking when we don’t accept it in other markets. Waller’s response was convoluted. Instead of answering that question, he went into the practical issues of intervention. He acknowledged that price controls have negative consequences, but that these consequences are mainly a result of governments not controlling the supply of the good. For example, it is hard to target the price of gasoline with a price ceiling and it causes shortages. But this is because the government cannot create gasoline ex nihilo. The Fed, however, can create money and credit ex nihilo, which makes it easier to target price inflation and interest rates.
It should be obvious that Waller did not answer the question. He used a classic trick: answer a different question and hope that listeners are satisfied with that and impressed by your sophisticated spiel. At this point we were informed that Waller needed to get to the room for his public talk.
Several smaller moments from the day followed the same pattern. In his public talk, Waller said the Fed has to “look through” supply-side issues such as tariffs. Yet later, in response to a student question, he said something like, “I’m not a tariff guy, I don’t know how they work.” Maybe it was an attempt at humor, but I don’t remember anyone laughing. Over lunch he dismissed the University of Michigan consumer sentiment survey as worthless, yet then cited it in the public speech. After the talk, one Auburn professor asked about Fed independence, prompting Fedspeak from Waller on how much accountability the government exercises over the Fed through presidential appointments and the chair’s semiannual congressional testimony.
I couldn’t help but laugh. Waller recited the standard line about how the Fed needs to balance accountability with independence from the rest of the government, but anyone with eyes can see that the Fed has no accountability in practice and will happily monetize tons of government debt when the Treasury needs them to. The Fed pretends that it is accountable to Congress and the executive branch while remaining independent enough to pursue monetary policy without undue influence from the rest of the government, especially partisan politics. But both are dubious.
The day did not persuade me that the Federal Reserve is guided by a coherent and transparent body of principles. It suggested the opposite. Again and again, Waller’s answers were evasive and seemed to rely on selective standards: dismissing one category of evidence in one context and invoking it in another, condemning explicit monetary taxation while defending implicit taxation via inflation, denouncing distortive interventions only after they have become inconvenient to defend, and showing little patience for any line of questioning that could undermine the Fed’s official story on anything.
