Barclays: Expects the Fed to Pause Rate Cuts After June Next Year, Until Mid-2026

BlockBeats News, December 22, Barclays Bank stated that one of the factors that may keep US interest rates high is US (inflation) policy. At the December meeting, some FOMC participants apparently began to reflect expectations of tariffs in their inflation forecasts. Furthermore, even among those who have not adjusted their official forecasts, many now believe that the balance of inflation risks tends to be on the upside.

Although Powell did not explicitly address the extent to which the Fed is inclined to view tariff-related price level increases, we believe that, in the case where tariffs are expected to exacerbate inflation in the second half of 2025, especially against the backdrop of rising inflation rates in recent years, it will be challenging for the Fed to continue cutting rates. We expect the Fed to pause rate cuts after June next year, and to resume cutting rates around mid-2026 once the inflationary pressure caused by tariffs dissipates. In our baseline scenario, we expect two 25 basis point rate cuts in 2026, with a terminal rate of 3.25-3.50%. (FXStreet)