Barclays Delays Fed Rate Cut Forecast to September

Barclays Revises Fed Rate Cut Timeline

Barclays has officially pushed back its forecast for the Federal Reserve's first interest rate reduction, now anticipating the move in September instead of June. This revision stems from higher-than-expected inflation and growing geopolitical risks.

Inflation and Geopolitical Headwinds

The bank's updated outlook is driven by persistent inflationary pressures. Core PCE inflation is showing strength, and Barclays has raised its year-end forecast for this metric to 2.8%. Additionally, surging oil prices linked to the Iran conflict are expected to push headline PCE inflation to 3.4% in the second quarter.

Impact on Monetary Policy

As a result of these factors, Barclays now projects only one 25-basis-point rate cut from the Federal Open Market Committee this year. The bank believes committee members will require more substantial evidence of moderating core inflation before gaining the confidence needed to ease monetary policy.

Outlook Summary

The FOMC is expected to look through the rise in headline inflation but will remain cautious. The key focus remains on whether underlying inflation is convincingly returning to the 2% target before any rate adjustments are made.

FAQ

Q: When does Barclays now expect the first Fed rate cut?
A: Barclays' new forecast points to a rate cut in September.

Q: Why was the forecast delayed?
A: The delay is due to higher inflation projections and increased geopolitical risks impacting oil prices.

Source: Investing.com