• Barclays shifts from recession forecast to predicting a U.S. growth slowdown in 2025.
  • Easing U.S.-China trade tensions and lower tariffs (14%) drive improved inflation outlook.
  • Fed now expected to cut rates just once in December 2025 amid resilient economic indicators.

A More Optimistic Economic Forecast

Barclays has significantly revised its U.S. economic projections, abandoning its earlier prediction of a second-half 2025 recession in favor of a growth slowdown scenario. The bank now anticipates 0.5% GDP growth for 2025, citing reduced trade tensions between Washington and Beijing as a key factor in its reassessment.

Trade tariffs have fallen to approximately 14% (17% when excluding temporary electronics exemptions), creating what analysts describe as "meaningful breathing room" for inflationary pressures. This development has prompted Barclays to lower its core PCE inflation forecast to 3.3% for Q4 2025, down from 3.8%, with expectations of further decline to 2.2% by end-2026.

Labor Market and Policy Implications

The improved outlook extends to employment projections, where Barclays now sees unemployment peaking at a modest 4.3% in late 2025. "The labor market continues to demonstrate remarkable resilience," noted a senior Barclays economist who asked not to be named discussing internal forecasts. This stability has led the bank to scale back its expectations for Federal Reserve action, predicting just one 25-basis-point cut in December 2025.

Global Context and Market Impact

While focusing on U.S. developments, Barclays also adjusted its European outlook, establishing a 540-point base case for the Stoxx 600. The revision comes despite what analysts describe as "limited fundamental support" in the near term. Meanwhile, S&P 500 earnings expectations for 2025 have been trimmed to $266 per share, reflecting ongoing market adjustments.

Market participants appear to be pricing in this more optimistic scenario, with recent trading activity suggesting growing confidence in the economy's ability to avoid contraction. However, some traders caution that the outlook remains fluid, particularly regarding geopolitical developments that could reignite trade tensions.

[This article was updated to clarify the timeline for expected Fed action.]