Waller's Tightrope Walk: Rate Cuts, Fed Independence, and the Trump Factor

Remarks of Officials

Summary:

Christopher Waller, a top contender to replace Jerome Powell as Fed Chair, supports rate cuts but has resisted pressure to act in line with Trump’s political agenda///

Balancing Rate Cuts with Autonomy

When the Federal Reserve voted on a quarter-point rate cut recently, all eyes were on Waller. With Trump’s newly appointed ally, Stephen Miran, calling for a more aggressive half-point cut, Waller stuck to his own analysis and voted with the majority. This decision reinforced his reputation for independent thinking and disciplined policymaking qualities critical for a potential Fed Chair.

Waller, a former economics professor, is known for his flexible, data-driven approach. He was the first policymaker in 2025 to call for resuming rate cuts, citing labor market weakness and the one-time inflationary impact of tariffs positions rooted in economic theory, not politics. His earlier call in 2022, arguing that inflation could be tamed without soaring unemployment, also proved accurate.

The Trump Pressure Campaign

Donald Trump continues to criticize Powell and push for drastic rate cuts. He’s already filled the board with loyalists like Miran and tried to remove Fed officials like Lisa Cook. With one more appointment, Trump could hold a majority on the Fed’s seven-member board. This raises concerns among analysts about whether the Fed’s regional presidents might be pressured or replaced.

Waller has shown willingness to reform the Fed. He’s pushed to reduce costs, streamline regional banks, and scrutinize the Fed’s expanding role in social and climate issues moves aligned with the Trump administration’s criticism of “mission creep.” Yet, his core stance remains clear: monetary policy must be shielded from political interference. His speeches continue to highlight the risks of undermining central bank credibility, including higher inflation expectations and rising interest rates.

Fed Leadership Contest and Policy Implications

Waller’s candidacy comes amid calls from Trump’s team for a comprehensive institutional review of the Fed. Other contenders, like Kevin Warsh, share skepticism toward recent Fed balance sheet strategies. While Waller supports the ample reserves framework, he is cautious about its trade-offs and does not favor asset-purchase-based stimulus.

Christopher Waller is emerging as a critical figure in the battle over the Fed’s future. His votes and public statements suggest he values institutional integrity over political alignment even when it may affect his chances of becoming Chair. But if appointed, the ultimate test will be whether he can maintain this independence in the face of direct pressure from a President determined to reshape the central bank. For now, markets are watching to see if Waller remains the economist first, not the politician’s choice.

Source: Bloomberg

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Gerik

Economic

Return of Global Capital

International investors are refocusing on Japanese assets, lured by the new government’s promises under Prime Minister Sanae Takaichi—the first female PM in Japan’s history. Her pro-growth policies include expanded fiscal spending, tax cuts, public investment, and maintaining low interest rates. These moves, seen as a revival attempt after Japan’s “lost decades,” have pushed the Nikkei 225 to fresh highs and renewed investor enthusiasm.

Compared to overvalued U.S. tech stocks and volatile European equities, Japanese markets offer a compelling risk-reward ratio. The Nikkei is up 24% YTD with a P/E ratio of 22, while the U.S. Nasdaq is up 19% with a far steeper P/E of 34. Europe’s STOXX 600 stands at a P/E of 18. This combination of reasonable valuation and strong growth is positioning Japan as a safe, balanced investment alternative.

“Takaichi Trade” and Global Sentiment Shift

Investors started moving capital even before the election, with foreign purchases of ¥4.36 trillion ($28.9 billion) of Japanese equities over two weeks through October 11—the largest net inflow since 2005. Optimism is tempered by caution: investors are wary of overreactions, drawing comparisons between Takaichi’s populist approach and former leaders like Donald Trump and Liz Truss, whose fiscal agendas led to market chaos.

The yen’s 4% decline this month undermines investor returns, despite benefiting exports. Some fear further depreciation could dampen capital inflows. Others highlight Takaichi’s lack of strong political control, raising concerns over her ability to deliver reforms sustainably. If markets lose confidence, the current wave of capital could reverse rapidly.

Outlook for Bonds and Repatriation Trends

While government spending raises inflation and debt concerns, some fund managers remain bullish on Japanese bonds. Nigel Foo (First Sentier) and Van Luu (Russell Investments) see value in long-term JGBs compared to German bunds or U.S. Treasuries, especially if domestic investors begin pulling capital back from U.S. bonds amid rising doubts about American fiscal stability.

Japan is emerging as a “new safe haven”—cheaper than the U.S., more stable than Europe, and under a government promising aggressive reforms. If Prime Minister Takaichi can maintain market confidence without triggering further yen depreciation or inflation, “Sanaenomics” could mark a turning point in Japan’s economic narrative. But if policy credibility weakens, the recent investor enthusiasm may fade as quickly as it arrived.

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Glendon

Political

Following a vote in the House of Representatives on 21 October, Japan has elected its first female prime minister, Sanae Takaichi. Cabinet appointments are underway. But the Takaichi government now faces numerous challenges.

Takaichi claims to be the successor to former Prime Minister Shinzo Abe and his assertive Japanese foreign policy, which built new security partnerships, boosted defence spending, and expanded the remit of the country’s Self Defense Forces. But Takaichi’s ability to replicate Abe’s success is uncertain, as she leads a weakened Liberal Democratic Party (LDP), confronts a surging far right at home, and negotiates relations with an unpredictable US partner.

Komeito’s withdrawal

The most significant problem facing Takaichi’s ability to form a government was the withdrawal of the Komeito Party from its coalition earlier this month. Komeito had been a partner for the past 26 years.

Komeito’s decision to leave the coalition was ostensibly based on the LDP’s recent record in government. The LDP faced nationwide criticism after it was revealed during the Kishida administration that it had neglected its reporting obligations regarding income from party fundraising systems. This impacted Komeito’s performance in the 2024 House of Representatives election and the 2025 House of Councillors election, where it saw significant losses – a major blow to a party already facing an aging supporter base and declining strength.

However, Komeito’s true reason for withdrawal was likely that it judged it impossible to maintain the coalition when Takaichi became LDP president. Komeito leader Saito has repeatedly made statements suggesting they would return to the coalition under the next president, implying that anyone but Takaichi would have continued to enjoy their support.

Komeito has historically appealed to pacifist, liberal-minded supporters, presenting itself as a check on the LDP security policies. The concern was likely that under Takaichi, this restraint would cease to function – Takaichi is described as a hawk on security issues and has previously visited the Yasukuni shrine which honours Japanese war dead. (Prime Minister Abe’s 2013 visit to the shrine angered China and South Korea).

Departure from pacifism due to generational change

This shift in Japan’s coalition politics can be attributed in part to changing social norms. Traditionally, older generations, who retain memories of the Second World War, have regarded Japan’s pacifist constitution as a national imperative, opposing measures like strengthening the country’s Self-Defense Forces. Such voters traditionally backed peace-oriented parties like Komeito and the Constitutional Democratic Party.

But for younger generations who have fading or no memories of war, the perspective is very different. Many feel threatened by China’s military rise and North Korea’s missiles. Events like Russia’s invasion of Ukraine, and the re-election of President Donald Trump in the US have eroded their trust in an international order based on the rule of law.

More voters believe Japan should strengthen its national capabilities, including its military, or risk being dominated by foreign powers. Domestically, migration is an increasingly important issue, fuelling discontent and feeding support for right wing parties. This dynamic underpinned the breakthrough of the far-right Sanseito party, which campaigned on a ‘Japanese First’ platform in July’s House of Councillors election. It also led the overwhelming majority of LDP members to support Takaichi’s leadership bid in an effort to hold off the Sanseito challenge.

Coalition with Ishin

Fortunately for Takaichi, a strong ally has emerged as a new coalition partner: The Japan Innovation Party (Ishin). This coalition will be just two seats short of a majority in the House of Representatives and five short in the House of Councillors. While still a minority government, this significantly increases the administration’s stability.

The Ishin is a political party founded with the goal of expanding the Osaka Restoration Party nationwide. Its policies centre on the Osaka sub-capital concept, aiming to resolve the excessive concentration of power in Tokyo, and on eliminating administrative inefficiencies through the Osaka Metropolitan Plan. This reflects its character as a libertarian party aspiring to smaller central government.

Ishin presented twelve demands but identified three as minimum requirements: a proposal to make Osaka Japan’s secondary capital; social security reform; and a 10 per cent reduction in the number of Diet members.

The Secondary Capital proposal requires complex administrative measures and is a long-term issue, presenting few immediate problems for the LDP. Social security reform poses more significant challenges, as the LDP has significant elderly support and has allowed social security-related budgets to grow steadily. But Ishin is not expected to pursue radical policies on this point, planning instead to address it as a long-term goal.

The biggest issue is reducing the number of Diet seats. The LDP already signed an agreement with the ruling Democratic Party in 2012 to reduce seats – but, the effort stalled due to opposition from within the LDP. Consequently, the Ishin demand is also highly unlikely to materialize.

Ishin’s inclusion of seat reduction as a coalition condition was largely intended to test how seriously the LDP views the coalition and showcase Ishin’s libertarian policy of reducing administrative waste.

Foreign and security policy of the coalition government

The LDP–Ishin coalition increases the likelihood that Japan will pursue more proactive foreign and security policies than before. Previously, the LDP’s coalition with Komeito imposed constraints on ambitions to enhance Japan’s capabilities. Dissolving that coalition removes them. Ishin holds a more hawkish stance on foreign and security policy than the LDP and aligns closely with the international outlook of Prime Minister Takaichi.

Ishin also supports constitutional reform, and formally establishing the Self-Defense Forces as a national military. In this sense, it overlaps significantly with the foreign and security policy pursued by Shinzo Abe. For Takaichi, Ishin is an ideal coalition partner.

However, such hawkish foreign and security policies carry risk.

Relations with South Korea improved during the Yoon Suk-yeol administration. They remained positive under President Lee Jae-myung, a progressive who also advocates ‘pragmatic diplomacy’ and chose to visit Japan before visiting the US in August – a very unusual move for a newly elected South Korean president. It implies that Lee regards the relationship with Japan as highly important for his administration.

However, were Takaichi or a member of her cabinet, to visit Japan’s Yasukuni Shrine or mention the Takeshima/Dokdo territorial dispute between Japan and South Korea, it could potentially appear as signs of resurgent nationalism in Japan and undermine these positive relations. (Takaichi has ruled out visiting the shrine as prime minister).

Regarding China, Takaichi has taken a clearly confrontational stance. The challenge now lies in how clearly she can articulate the difference between her position when she was outside the government and could speak freely, and her new role as prime minister.

Perhaps the greatest challenge for her administration will be navigating relations with the administration of US President Donald Trump. The Ishiba administration secured an agreement on tariffs and investment with Washington. But it falls to the Takaichi administration to implement it. Failure to do so could invite pressure from the US and potentially worsen relations.

Takaichi will need to build a personal relationship with President Trump – who tends to avoid international commitments and make statements undermining the credibility of extended deterrence – to ensure Japan maintains deterrence against China, North Korea, and Russia.

Takaichi sees herself as the successor to Abe’s diplomacy. She must now demonstrate her capabilities.

Source: Chatham House

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Samantha Luan

Economic

Political

Forex

Indonesia's central bank surprised markets by leaving interest rates on hold at its October meeting, pausing after three consecutive cuts as it keeps an eye on the rupiah.Bank Indonesia held its benchmark seven-day reverse repo rate at 4.75% on Wednesday, upending the expectations of six of seven economists polled by The Wall Street Journal.The rupiah strengthened slightly after the decision, which Gov. Perry Warjiyo said is consistent with the central bank's expectations of low inflation within the 1.5%-3.5% target range and its mandate to maintain currency stability amid global uncertainty.

Indonesia's economic growth remains solid and must continue to be supported to align with the economy's potential, Warjiyo said. He added that Bank Indonesia will continue to strengthen its policy mix with fiscal measures to bolster growth, with full-year 2025 GDP expected to come in slightly above the midpoint of the 4.6%-5.4% range and rise further in 2026.Going forward, the central bank will monitor the effectiveness of monetary-policy transmission, as well as prospects for growth, inflation and rupiah stability, to determine whether there's room for additional rate cuts, he said.

Bank Indonesia also left its overnight deposit facility rate unchanged at 3.75% and its lending facility rate at 5.50%.Indonesia's policymakers likely want to gauge the impact of previous rate cuts before acting further, analysts say.Bank Indonesia's focus on reviewing "monetary policy transmission so far" suggests a dovish bias and indicates it may not be long before rates are lowered again, said Jason Tuvey, deputy chief emerging markets economist at Capital Economics.

Capital Economics expects three more rate cuts, bringing the policy rate to 4.0% by early next year, as inflation remains subdued and growth concerns persist.While Wednesday's decision may ease concerns over the central bank's independence amid government pressure for looser policy, Tuvey warned there remains a risk that political influence could push Bank Indonesia to ease more aggressively than expected in pursuit of President Prabowo's 8% GDP growth target.

The surprise signals a cautious approach as the central bank assesses the transmission of prior easing measures amid rupiah volatility and global uncertainty, said Kevin Khaw Khai Sheng at iFast Capital.Given the uncertain domestic growth outlook and external risks, especially from U.S. policy, he expects BI to resume rate cuts in early 2026--assuming a firmer rupiah on a weaker dollar, with the central bank prioritizing financial stability over aggressive stimulus.

Source: TradingView

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Economic

Inflation Remains Unchanged, Casting Doubt on Rate Cut Timing

The latest data from the Office for National Statistics (ONS) revealed that the UK’s Consumer Price Index (CPI) remained unchanged at 3.8% in September, the third consecutive month at this level. This figure fell short of market and central bank expectations, both of which anticipated a rise to 4% the level previously forecast by the Bank of England (BoE) as the likely peak for 2025.

While core inflation eased slightly from 3.6% to 3.5%, the figures underline a persistent inflation problem, driven by rising petrol prices and airfares, partly offset by falling food and recreation costs. The mixed inflation picture complicates the outlook for monetary policy as the BoE’s next meeting on November 6 draws closer.

BoE Faces a Delicate Balancing Act

Despite calls for easing, the case for a November rate cut appears increasingly weak. Inflation remains nearly double the BoE’s 2% target, and sticky wage growth paired with weak productivity threatens to entrench elevated price levels. George Brown of Schroders stressed that “high inflation is at risk of becoming entrenched,” and warned markets not to count on further cuts too quickly.

Suren Thiru from the Institute of Chartered Accountants in England and Wales (ICAEW) echoed this sentiment, noting that “the chances of a November rate cut are hanging by a thread,” especially with the Autumn Budget on November 26 potentially introducing disinflationary fiscal measures.

Growth Stalls, but Labour Market May Hold the Key

While inflation has proven stubborn, economic growth remains anemic. GDP expanded just 0.1% in August, signaling a fragile recovery. The BoE now faces a tough decision: hold rates steady to tame inflation, or cut to support slowing growth and a softening jobs market.

Matthew Ryan of Ebury noted the MPC is “stuck between a rock and a hard place,” with the cooling labour market demanding action, but inflation urging restraint. He considers a November rate cut “off the table,” and sees a December cut as possible, though still uncertain.

Fiscal Policy Looms Large in November Calculations

Chancellor Rachel Reeves acknowledged dissatisfaction with current inflation and reaffirmed her commitment to support the BoE. Speculation is rising that the government could reduce VAT on energy in the upcoming Autumn Budget a move that could alleviate pressure on consumer prices and, in turn, give the BoE more leeway.

Scott Gardner of Nutmeg highlighted the limited room for maneuver, both for fiscal and monetary authorities: “The Bank of England also has few levers to pull as the economy experiences a period of elevated inflation and low growth.”

Outlook: Rate Cuts Still on the Horizon, But Further Out

While market expectations had priced in two rate cuts for 2026, the unchanged inflation reading calls that trajectory into question. Analysts agree that without a clearer sign of inflation falling back toward the target, the BoE is unlikely to act. The December 18 meeting may offer a better window, but much will hinge on the post-budget landscape and incoming labour market data.

Until then, the BoE remains in a holding pattern watching, waiting, and hoping inflation truly has peaked.

Source: CNBC

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Gerik

Economic

Apple’s Local Strategy Pays Off Ahead of Singles Day

While Nvidia’s presence in China has vanished due to U.S. export restrictions, Apple is thriving. In a strategic shift, Apple has adapted its marketing playbook to resonate with Chinese consumers. From CEO Tim Cook’s high-profile presence on Xiaohongshu and livestreaming on Douyin, to the timely domestic release of the iPhone Air, the company has localized its approach ahead of the Singles Day shopping festival.

The results were immediate. Within the first two hours of Singles Day kickoff on Alibaba’s Tmall, Apple surpassed its first-day sales from 2024. According to Counterpoint Research, early sales of the iPhone 17 in China nearly doubled those of its predecessor. These gains helped Apple reach a record share price on Monday, solidifying its place as the world’s second-most valuable public company after Nvidia.

Greater China contributed 16% of Apple’s revenue for the quarter ending June 28, making it the company’s third-largest market after the U.S. and Europe. Despite geopolitical headwinds, Apple’s continued success in China reinforces its reliance on Chinese consumers for global performance.

U.S. Brands Still Betting Big on Chinese Consumption

Apple isn’t alone. Nike derived 13% of its latest quarterly sales from China, and Lululemon reported that 16% of its global revenue now comes from mainland China up from 13% last year. On Singles Day, all three brands Apple, Nike, and Lululemon were among the top 80 companies on Tmall with over 100 million yuan ($14 million) in sales within the first hour.

The strong start to the Singles Day season suggests Chinese consumer demand, while moderated compared to pre-pandemic highs, remains critical to multinational earnings. According to Bain & Company’s Weiwan Han, this isn’t just about sales it's a global positioning issue. “If you lose [the Chinese market], eventually you lose everywhere,” Han warned.

U.S. Brands Seek Deeper Market Access via Cross-Border E-Commerce

In a push to expand in China without relying on physical infrastructure, 50 U.S. consumer brands participated in a Los Angeles event hosted by Alibaba’s Tmall Global and WPIC Marketing. Cross-border e-commerce, according to WPIC CEO Jacob Cooke, is now the most viable entry point for foreign brands navigating a geopolitically sensitive trade environment.

While trade tensions persist, the Chinese consumer's appetite for high-quality U.S. goods remains steady, supported by rising middle-class expectations and ongoing digitalization of retail.

Alibaba’s AI Ambitions Drive New Retail Innovations

This year’s Singles Day also served as a testing ground for Alibaba’s advanced AI tools. New features now allow product recommendations based on gift intent and contextual search such as “best cat litter for homes with cats and dogs” aimed at increasing personalization and conversion rates.

Alibaba’s VP of AI for e-commerce, Zhang Kaifu, claimed the company has already recovered its AI investment through improved efficiency and seller value creation. The tools not only boost performance but also enable cost-saving automation across product discovery, customer interaction, and inventory management.

Other Chinese tech firms are also joining the AI wave. Smartphone brand Honor released an on-device tool that automatically compares prices and coupons across platforms. Forrester analyst Charlie Dai expects wider AI adoption this year through virtual try-ons, AI-generated live hosts, and chat-based sales assistants on JD.com and Douyin.

Consumer Spending Still Lags, But Experiential Retail Gains Ground

Despite the Singles Day buzz, underlying retail data remains cautious. China’s retail sales rose just 3% year-on-year in September, far below pre-COVID benchmarks. But brands are pushing forward with immersive experiences to stimulate demand.

LVMH opened “The Louis,” a flagship store in Shanghai styled like a luxury ship, drawing 2,500 daily visitors. HSBC analysts say the concept taps into a need for “joy” and “surprise” in a subdued retail environment. Even LVMH CEO Bernard Arnault has taken note reportedly visiting both The Louis and local luxury brand Laopu Gold during a recent China trip.

Asia remains LVMH’s top market by revenue, and the firm has seen domestic Chinese sales rebound by mid- to high-single digits.

Brands Reluctant to Exit, Despite Strategic Risks

While Washington ramps up tariffs and export controls, few Western brands show signs of pulling out of China. On the contrary, they’re doubling down adapting marketing, integrating AI, and betting on digital-first models to deepen engagement.

The strategic logic is clear: China’s massive, sophisticated consumer base is too important to cede both as a current revenue engine and a future battleground for global relevance. For many multinational brands, defending global market share starts with staying competitive in China.

Source: CNBC

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Daniel Carter

Political

The US government shutdown, now in its 22nd day, has become the second-longest in history as the stalemate between the two parties over expiring health-care subsidies persists.

With President Donald Trump expected to leave later this week for a trip to Asia, lawmakers and congressional aides say they see a real possibility the closure could extend into November and surpass the 35-day shutdown of Trump's first term.

A Tuesday meeting at the White House between Trump and Senate Republicans appeared to only strengthen the GOP resolve to refuse to negotiate with Democrats, who have demanded as their price for reopening the government that Congress provide relief to 22 million Americans whose health-care premiums will spike in January.

“Our message has been very simple: We will not be extorted on this crazy plot of theirs,” Trump said.

Senate Democratic leader Chuck Schumer and House Democratic leader Hakeem Jeffries have asked to meet with Trump before his Asia trip, but the president late Tuesday said he would only talk to them after the shutdown ends.

The Senate needs the votes of at least eight Democrats to overcome a filibuster on the House-passed temporary spending bill, which expires on Nov. 21.

Senate Republican Leader John Thune has publicly promised Democrats a floor vote on renewing expanded Affordable Care Act subsidies after the government reopens. But Democrats, skeptical that the House would ever take such a vote, say that is not enough.

“The bottom line is that's no deal, that's a partisan plan that leaves the American people high and dry,” Schumer told reporters.

The shutdown's economic disruption will deepen this week as civilian federal workers, who were partially paid earlier this month, are set to miss their first full paycheck on Friday.

The White House has also warned that it may not be able to use extraordinary — and potentially illegal — accounting moves to continue to pay the military and to prevent federal food aid from drying up next month.

Anna Wong, Bloomberg Economics chief US economist, said the shutdown will cause a slight temporary increase in the unemployment rate but revert back to 4.3% when the government reopens.

But the effect, she noted, is particularly acute in the Washington region, with its high concentration of federal workers, as well as contractors, vendors and services businesses that won't receive back pay.

House Republicans have been home since Sept. 19 and Speaker Mike Johnson plans to keep them away from the Capitol for the rest of October so long as the shutdown persists. Johnson and his fellow Republicans have said there is no need to change a word in the stopgap bill to woo Democratic support.

“There is nothing to negotiate,” Johnson told reporters Tuesday.

Johnson has said there could be talks toward the end of the year on the expiring subsidies, but conservatives are demanding concessions, including restrictions on Obamacare plans covering abortion and transgender care.

The White House meanwhile has threatened to further punish Democrats by canceling federal projects in majority Democratic states. Trump has equated budget director Russell Vought to the powerful Star Wars villain Darth Vader.

Already the White House budget office has canceled or put on hold $28 billion in projects in these areas and attempted mass layoffs in domestic agencies such as the departments of Education, Health and Human Services and Interior. Those layoffs have temporarily been put on hold by a judge while a battle plays out over whether spending money to conduct mass layoffs in a shutdown violates federal budget laws.

These moves have only emboldened Democrats, some of whom now demand a check on Vought's powers in any shutdown deal.

Quiet talks between moderates in the Senate have yielded no progress. Asked Tuesday if she saw any off ramp from the standoff, key moderate Democratic Senator Jeanne Shaheen of New Hampshire shook her head.

“None that I am seeing,” she said.