Political pressure on Fed seen as cautionary tale for BSP

The clash between the U.S. Justice Department and the Federal Reserve has triggered a political firestorm and renewed debate over central bank independence, drawing warnings from Wall Street leaders about the economic costs of perceived interference in monetary policy.

JPMorgan Chase chief executive Jamie Dimon emerged this week as one of the defenders of central bank independence after the DOJ issued grand jury subpoenas involving the Federal Reserve, following disclosures by Jerome Powell, the current Fed chair, linked to his testimony on the Fed’s Washington building renovation. Dimon warned that “anything that chips away” at the Fed’s independence is “not a good idea,” arguing it could lift inflation expectations and interest rates — contrary to the administration’s push for lower rates.

While the standoff is unfolding in Washington, its implications resonate beyond the United States. For emerging markets such as the Philippines, where monetary credibility anchors inflation expectations, capital flows, and exchange-rate stability, the episode serves as a cautionary parallel at a time when domestic economic management is under scrutiny.

A warning from Wall Street

Dimon’s remarks came after Powell disclosed that the Fed had received grand jury subpoenas from the DOJ related to a multiyear renovation project, sparking backlash from former central bankers and finance officials across party lines. Powell has characterized the investigation as a “pretext” tied to political pressure over interest rates.

Dimon said political interference with the Fed would likely drive inflation and borrowing costs higher. While acknowledging disagreements with some Fed actions, he stressed his “enormous respect” for Powell and the institution’s independence — an argument echoed by other bank executives and former U.S. officials who warned that weakening central bank autonomy risks broader financial instability.

Philippine inflation risks tilt lower, policy space opens

In the Philippines, the macroeconomic backdrop is markedly different, but the premium on central bank credibility remains high.

The Bangko Sentral ng Pilipinas (BSP) has flagged inflation risks in 2026 as tilted to the downside, according to its December 2025 Monetary Policy Report. Using an Inflation-at-Risk framework, the BSP estimates a 44.8 percent probability that inflation could fall below 2 percent by October 2026, with the lower tail of outcomes as low as 0.3 percent; the upper-tail estimate is 3.2 percent, and the probability of exceeding 4 percent is “essentially zero.”

Headline inflation stood at 1.8 percent in December 2025, bringing full-year inflation to 1.7 percent — below the 2–4 percent target — while core inflation was reported at 2.4 percent. With inflation low and growth risks present, analysts have argued the BSP still has room to ease, though BSP communications have also pointed to caution as the easing cycle nears its end.

Infrastructure spending, governance, and growth risks

Monetary policy does not operate in a vacuum. Fiscal execution and governance conditions shape the environment in which central banks act.

The Department of Budget and Management has lowered its infrastructure spending target to 4.3 percent of GDP for 2026 — equivalent to about P1.3 trillion — down from earlier plans above 5 percent, as the government grapples with fallout from corruption allegations linked to flood control projects.

Why central bank independence matters 

The Fed-DOJ confrontation illustrates a risk familiar to emerging economies: once monetary authorities are perceived as politically constrained, costs can surface through currency weakness, capital outflows, and higher inflation risk premia.

In the Philippine context, BSP credibility has historically anchored inflation expectations. Bank lending growth remains in double digits; BSP data show universal and commercial bank loans expanded 10.3 percent year-on-year in November 2025.

For the Philippines — where food makes up about 38 percent of the CPI basket — external shocks can transmit quickly, strengthening the case for preserving a clear institutional boundary between monetary policy and political interests.

DAILY TRIBUNE sought comment on the implications for Philippine monetary policy amid global uncertainty.

RCBC chief economist Michael Ricafort said inflation conditions remain supportive of further easing, though risks persist.

“Relatively benign inflation [or CPI] could remain at or slightly below 2 percent possibly up to February 2026, and at least 2 to 3 percent from March 2026 onwards… with the 0.9 percent inflation rate in July 2025 likely already the bottom amid higher CPI base effects back then,” Ricafort said in a text message.

“This would be followed by easing base effects that would mathematically lead to some pickup in year-on-year inflation in the coming months… still within the BSP’s 2 to 4 percent target after 10 straight months below the band, and could still average around 3.2 percent for 2026,” he added.

Ricafort said this environment “could still justify or support future local policy rate cuts that would match future Fed rate cuts in 2026,” noting that easing could “realistically happen in the latter part of 2026, as early as June 2026, based on the latest Fed funds futures.”

“However, BSP Governor Remolona has lately signaled that a possible 25-basis-point rate cut is on the table in February 2026,” he said.

Ricafort also flagged external risks that could alter the inflation outlook.

“Geopolitical risk factors that could have an impact on inflation would be world oil prices, since the Philippines imports almost all of its oil requirements, [and] U.S. dollar performance versus major global currencies, since the Philippines is a net importing country,” he said.

He added that there are also “potential effects of external risk factors on other global commodity prices and supply chains.”

Oil markets have taken on renewed geopolitical significance following the United States’ seizure of Venezuelan oil assets after the capture of President Nicolás Maduro under the Trump administration.