• Barclays expects only one 25bp rate cut in December, dismissing market bets on a September move.
  • Fed Chair Powell's recent remarks suggest policy remains 'only modestly restrictive' with a 'solid' labor market.
  • Despite July's softer jobs report, Barclays sees no shift in the FOMC's cautious stance.

Barclays Doubts September Rate Cut

Barclays has pushed back against growing market optimism for a Federal Reserve rate cut in September, arguing that recent U.S. jobs data won’t sway Chair Jerome Powell from maintaining a hawkish posture. The bank anticipates just one 25 basis-point reduction in December, contrary to traders pricing in earlier easing.

Powell’s recent characterization of monetary policy as "only modestly restrictive" and the labor market as "solid" suggests the Fed remains focused on inflation risks rather than premature easing, according to Barclays analysts. While July’s nonfarm payrolls showed slower job growth and unemployment inched up to 4.2%, these figures haven’t altered the central bank’s calculus.

"The Fed wants more confidence that inflation is sustainably moving toward 2%, and a single month of softer labor data isn’t enough," said one Barclays strategist familiar with the analysis. "Market pricing for September seems disconnected from the Committee’s communications."

Jackson Hole in Focus

With September still a "close call," Barclays suggests Powell’s upcoming remarks at the Jackson Hole Economic Symposium could provide critical signals. The bank notes that several FOMC members have recently emphasized the need for prolonged restrictive policy, with only modest progress on inflation so far.

Barclays’ stance reflects broader skepticism on Wall Street about the Fed’s willingness to pivot quickly. Other major banks have also tempered their rate cut expectations following resilient economic data, though Barclays stands out for its singular December call.

Treasury yields edged higher Friday as traders digested the conflicting signals, with the 2-year note—most sensitive to Fed policy expectations—climbing 3 basis points to 4.89%. Fed funds futures now price about a 60% chance of a September cut, down from nearly 80% earlier this month.

Barclays maintains its view that investors are underestimating the Fed’s resolve, particularly given core inflation remains above target. "Unless we see consecutive weak employment reports or a sharper slowdown, the Fed will likely stay put," the strategist added.