• Barclays shifts its Fed rate cut forecast from two cuts in 2025 to just one in December.
  • The revision follows a US-China trade agreement and reflects a more conservative outlook than current market pricing.
  • Fed funds rate remains at 4.25%-4.50% as policymakers balance inflation concerns against economic growth.

A More Hawkish Stance Emerges

Barclays has significantly pared back its expectations for Federal Reserve interest rate cuts this year, now anticipating just one 25 basis-point reduction in December versus its previous call for two cuts in July and September. The shift comes in the wake of a newly announced US-China trade agreement that appears to have altered the bank's economic outlook.

"The trade deal removes one potential downside risk to growth while doing little to ease inflationary pressures," said a Barclays strategist who asked not to be named discussing internal forecasts. The bank declined to comment when reached for clarification on its revised projections.

Diverging From Market Consensus

The updated outlook places Barclays at odds with some market participants who have grown increasingly dovish in recent weeks. Fed funds futures now price in nearly a 38% chance of five rate cuts by year-end, according to CME Group data - a stark contrast to Barclays' single-cut scenario.

This disagreement highlights the uncertainty surrounding monetary policy as the Fed balances resilient economic data against lingering inflation concerns. The central bank has held rates steady at 4.25%-4.50% since December 2024 after three consecutive cuts last year.

The Trade Deal Factor

While details of the US-China agreement remain sparse, Barclays' revision suggests the bank views the pact as net positive for growth without being disinflationary. This interpretation runs counter to some analysts who expected trade normalization to ease price pressures through more efficient supply chains.

The Fed's next meeting in June will be closely watched for any reaction to the trade developments or hints about the timing of potential rate moves. For now, Chair Jerome Powell has maintained his cautious stance, emphasizing the need for "greater confidence" that inflation is moving sustainably toward the 2% target.