Economics Weekly: Politics, Trade, and Budgets
US/Japan: Fed independence; Japan snap election in focus. The Fed’s independence remains a question. US President Donald Trump expects his Fed Chair nominee, Kevin Warsh, to resume rate cuts. H...
Chief Investment Office - Hong Kong6 Feb 2026
Article image
Photo credit: Unsplash
Read More

US/Japan: Fed independence; Japan snap election in focus. The Fed’s independence remains a question. US President Donald Trump expects his Fed Chair nominee, Kevin Warsh, to resume rate cuts. However, it is still unclear whether the US Senate will begin the confirmation hearing for Warsh to succeed Powell in mid-May, as it faces opposition from Senators Thom Tillis (Republican) and Elizabeth Warren (Democrat) regarding the legal cases against Powell and Governor Lisa Cook.

Meanwhile, the US ISM Manufacturing PMI was significantly stronger at 52.6 in January, well above the consensus for a rise to 48.5 (from 47.9 in December). New orders surged to a three-year high of 57.1, employment climbed to a one-year high of 48.1 (though still below the 50 break-even level), and prices paid increased to a four-month high of 59. In addition, the ISM services PMI, which carries greater weight for the US economy, came in at 53.8, defying market expectations of a moderation to 53.5 (from 53.8 in December).

Market attention now turns to next week’s delayed labour report (11 Feb) and CPI release (13 Feb), both postponed due to the partial government shutdown. Market consensus expects NFP at 71K (up from 50K in the preceding month) and a flat unemployment rate at 4.4%, while headline CPI to rise by 2.5% in January from 2.7% in December.

At current levels, the market is indicating two rate cuts by year-end. Our version of the Taylor Rule model suggests that policy settings are already neutral (if not a tad dovish given current data). We see risks that the Fed may cut rates later than our current 1Q26 forecast.

Turning to Japan, expectations are high that the ruling Liberal Democratic Party (LDP) will reclaim a single-party mandate in snap elections on 8 Feb. At face value, this implies higher odds of expansionary fiscal policies (possibly a record national budget in April) and arguably more pressure on the Bank of Japan to keep rates steady.


Download the PDF to read the full report which includes coverage on Credit, FX, Rates, and Thematics.

Disclaimers and Important Notices

The information published by DBS Bank Ltd. (company registration no.: 196800306E) (“DBS”) is for information only. It is based on information or opinions obtained from sources believed to be reliable (but which have not been independently verified by DBS, its related companies and affiliates (“DBS Group”)) and to the maximum extent permitted by law, DBS Group does not make any representation or warranty (express or implied) as to its accuracy, completeness, timeliness or correctness for any particular purpose. Opinions and estimates are subject to change without notice. The publication and distribution of the information does not constitute nor does it imply any form of endorsement by DBS Group of any person, entity, services or products described or appearing in the information. Any past performance, projection, forecast or simulation of results is not necessarily indicative of the future or likely performance of any investment or securities. Foreign exchange transactions involve risks. You should note that fluctuations in foreign exchange rates may result in losses. You may wish to seek your own independent financial, tax, or legal advice or make such independent investigations as you consider necessary or appropriate.

The information published is not and does not constitute or form part of any offer, recommendation, invitation or solicitation to subscribe to or to enter into any transaction; nor is it calculated to invite, nor does it permit the making of offers to the public to subscribe to or enter into any transaction in any jurisdiction or country in which such offer, recommendation, invitation or solicitation is not authorised or to any person to whom it is unlawful to make such offer, recommendation, invitation or solicitation or where such offer, recommendation, invitation or solicitation would be contrary to law or regulation or which would subject DBS Group to any registration requirement within such jurisdiction or country, and should not be viewed as such. Without prejudice to the generality of the foregoing, the information, services or products described or appearing in the information are not specifically intended for or specifically targeted at the public in any specific jurisdiction.

The information is the property of DBS and is protected by applicable intellectual property laws. No reproduction, transmission, sale, distribution, publication, broadcast, circulation, modification, dissemination, or commercial exploitation such information in any manner (including electronic, print or other media now known or hereafter developed) is permitted.

DBS Group and its respective directors, officers and/or employees may have positions or other interests in, and may effect transactions in securities mentioned and may also perform or seek to perform broking, investment banking and other banking or financial services to any persons or entities mentioned.

To the maximum extent permitted by law, DBS Group accepts no liability for any losses or damages (including direct, special, indirect, consequential, incidental or loss of profits) of any kind arising from or in connection with any reliance and/or use of the information (including any error, omission or misstatement, negligent or otherwise) or further communication, even if DBS Group has been advised of the possibility thereof.

The information is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. The information is distributed (a) in Singapore, by DBS Bank Ltd.; (b) in China, by DBS Bank (China) Ltd; (c) in Hong Kong, by DBS Bank (Hong Kong) Limited; (d) in Taiwan, by DBS Bank (Taiwan) Ltd; (e) in Indonesia, by PT DBS Indonesia; and (f) in India, by DBS Bank Ltd, Mumbai Branch.