A tale of two central banks

For central bank watchers, heads turn to the Fed and back again.

As I write this article, I realize it has been almost a year since we talked about how deep central banks would cut rates and we find ourselves right back where we started, almost.

Since that time, the US Federal Reserve (Fed) rolled out a jumbo rate cut, followed by two additional rounds of easing. Now, the upper bound of the Fed funds target rate sits at 4.5%.

And just like last year, the Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona moved ahead of his US counterpart Jerome Powell, cutting rates in August. Market players easily price in a similar cut by the Fed at their September meeting.

So, the big question for markets now is: will the 2025 edition play out just like 2024?

Possibly, yes, but likely, no. Yes, in the sense that we’ll still likely see these two central banks providing support to their respective economies. No, in the sense that we’re not likely to see rate cuts of the magnitude of yesteryear.

Growth support

The Fed has rolled out a cumulative 100 basis points (bps) worth of easing in 2024 and will likely resort to an additional 50 to 75 bps of rate cuts before the end of the year.

The logic behind the easing centers around the floundering jobs market alongside a pickup in price pressures post Liberation Day. Powell does recognize the need to: a) support the economy (see the disappointing non-farm payrolls of late), and b) remain mindful of budding price pressure.

Related article: Fed Preview: Powell’s reason to cut rates

Tariffs imposed by Trump are projected to fan price pressure in the US but lead to deflationary pressure elsewhere.

Remolona, on the other hand, finds himself faced with external growth risks, prompting a decisive move to bolster growth momentum amid target-consistent inflation dynamics.

He has cut policy rates three times this year to insulate the economy from the fallout from Trump’s tariffs on global trade—and the BSP governor is still open to doing more.

Inflation averaged 1.7% in January to August 2025, below the BSP’s target, and year-to-date growth is marginally below the government’s target.

We could see Governor Remolona opting to cut a fourth time this year should the outlook suggest target-consistent inflation through to 2027.

Barring any supply-side shocks, we expect inflation to average within the BSP’s 2-4% target this year, next year, and the year after that. This indicates a potential rate cut by the BSP could still be in the cards at the December meeting.

What does 2026 have in store

With both the Fed and the BSP expected to end 2025 with accommodative policy moves, we might very well need to roll into our next question: what happens in 2026?

The cop out answer: It depends on the data. But what are the things that are sure to happen in the coming months? Possibly the most pivotal development happening in 2026 will be the replacement of Powell at the helm of the Fed.

Powell has held on to his position even in the face of immense pressure from Trump to resign, but it is almost a foregone conclusion that Trump will be replacing Powell with a more dovish leaning individual.

Will that mean we will see more easing from the Fed in 2026? Most likely. Although, the pace and magnitude of cuts could (and should) still be tempered by the US inflation outlook.

Remolona’s accommodative stance

Closer to home, market players recently focused on how Remolona turned “less dovish” at his last press conference, turning their attention to the possibility of “more gradual” rate cuts from the BSP in the coming months.

What we wanted to focus on was how Remolona wanted to reiterate that he was still intent on retaining his “pro-growth” stance by remaining “accommodative.”

BSP has moved to lower rates by a cumulative 150 bps over a year, as the BSP Governor pivoted to providing the economy with a cushion to weather challenges, including slower global trade.

While much still depends on what the Fed does in the coming months, we could still see BSP lowering policy rates to as low as 4.25% by the end of 2026, as Remolona holds on to his directive to provide commensurate support for the economy amid a challenging landscape.

(Disclaimer: This is general investment information only and does not constitute an offer or guarantee, with all investment decisions made at your own risk. The bank takes no responsibility for any potential losses.)

NICHOLAS MAPA is Metrobank’s Chief Economist, Market Strategist, and Head of the Research and Market Strategy Department in the Financial Markets Sector. He graduated from the University of Asia and the Pacific (UA&P) with an undergraduate degree in Humanities and a Master of Science (MSc) in Industrial Economics. He also completed an MA in Economics from Vanderbilt University and an MBA from the Kelley School of Business at Indiana University. He travels regularly with his family, enamored by culture and history. An avid learner, he also reads extensively.