Barclays expects only one 25bp Fed price lower this 12 months

Investing.com — Barclays (LON:BARC) strategists count on the Federal Reserve to implement just one price lower of 25 foundation factors in 2025, in June, as stronger-than-expected financial knowledge and agency inflation expectations reshape the outlook for US financial coverage.

December labor market knowledge exceeded expectations, with nonfarm payrolls surging by 256,000, far above the consensus estimate of 165,000. Furthermore, the unemployment price edged all the way down to 4.1%, supported by sturdy family employment development. Regardless of slowing common hourly earnings, payroll revenue rose at an annualized tempo of 5.4%, indicating sustained momentum in shopper spending.

“Labor demand seems to be on a firmer trajectory than we had thought,” Barclays strategists led by Jonathan Millar stated in a notice.

Additionally they level out the blended inflation indicators, which add to the uncertainty of the present surroundings.

Whereas wage development seems to be moderating—now under the Fed’s 3.0-3.5% threshold for reaching its 2% inflation goal—different indicators level to persistent pressures. Notably, the ISM enter value index reached its highest stage since early 2023, and family inflation expectations for the following 12 months jumped to three.3%.

“Given such sturdy knowledge, we now count on the FOMC to chop charges solely as soon as this 12 months, by 25bp in June, bringing the fed funds goal vary to 4.00-4.25% by year-end,” Barclays acknowledged.

The agency eliminated a beforehand forecasted March price lower, citing expectations for financial exercise to sluggish within the coming quarters whereas inflation continues to decelerate within the first half of 2025. Inflation is then anticipated to resurge within the second half, pushed by the seemingly tariffs beneath the Trump administration.

Total, monetary situations stay restrictive regardless of the Fed’s 100-basis-point cuts in 2024. Rising long-term yields and a strengthening greenback have offset the results of prior price reductions, supporting Barclays’ view of a gradual financial easing trajectory.

Wanting forward, the financial institution foresees the Fed pausing after the June lower, sustaining the federal funds price at 4.00-4.25% for a 12 months. Further price cuts are anticipated to renew in mid-2026 as inflationary pressures additional abate.

“We nonetheless assume the federal funds price will finish 2026 at 3.25-3.50%, implying an extra lower in December subsequent 12 months,” strategists concluded.