- Barclays economists reduce 2026 rate cut expectations from three to two 25 bps moves.
- Inflation concerns and recent tariff measures drive the more cautious outlook.
- Two cuts still anticipated in 2025 (June and September) pending clear inflation improvement.
Barclays Takes More Conservative Stance on Fed Cuts
Barclays has walked back its earlier projection for three Federal Reserve rate cuts in 2026, now anticipating just two 25 basis-point reductions as inflation proves stickier than expected. The revised forecast from economists Marc Giannoni and Jonathan Millar reflects growing concerns about price pressures, particularly after recent U.S. tariff announcements.
"The window for a March 2026 cut appears closed given current inflation trajectories," the analysts wrote in a note to clients, citing upward revisions to their inflation projections. They maintain calls for two 2025 cuts in June and September, but stressed these remain contingent on "clear improvement" in monthly inflation prints.
Tariffs Complicate the Picture
The adjustment comes amid a flurry of economic crosscurrents. While February's softer-than-expected CPI print (0.2% vs. 0.3% forecast) offered some relief, analysts note April data will prove crucial as it captures early effects of new tariffs and minimum wage increases. Barclays now sees these measures adding roughly 0.3 percentage points to core PCE inflation through 2026.
"We're in a period where the Fed needs to see several clean inflation reports before committing," said a fixed income strategist at a major bank who asked not to be named. "The labor market cooling helps, but tariffs change the calculus."
Other firms maintain more aggressive outlooks, with Morgan Stanley still projecting deeper cuts. But Barclays' revision signals growing Wall Street acknowledgment that the "last mile" of inflation fighting may prove toughest. The bank's team emphasized they could revisit their forecast should April-June data show meaningful disinflation.