Beijing, December 23 - Barclays recently predicted that the Federal Reserve might pause interest rate cuts after June 2024 and resume its easing policy in mid-2026 once inflationary pressure caused by tariffs dissipates. This forecast reflects a comprehensive assessment of future inflation and the economic environment.
Inflation Risks Influence Policy Choices
Barclays noted that a significant factor keeping U.S. interest rates high is the potential impact of tariff policies on inflation. During the Federal Reserve's December meeting, some members of the Federal Open Market Committee (FOMC) have accounted for the expected impact of tariffs in their inflation forecasts. Although Fed Chairman Powell did not specify how tariffs affect policy, the market generally believes that tariffs may exacerbate inflation in the second half of 2025, limiting the Fed's scope for further rate cuts.
Barclays further analyzed that even if some members have not adjusted their inflation forecasts, there are many voices within the FOMC that see inflation risks as leaning upwards. Especially amid persistent high inflation in recent years, price hikes related to tariffs may force the Fed to adopt a more cautious policy stance.
Rate Cut Path and Timeline Prediction
According to Barclays' baseline forecast, the Fed will pause interest rate cuts after June 2024 and could only restart easing policies once inflationary pressures ease by mid-2026. It is anticipated that there will be two rate cuts of 25 basis points in 2026, with a terminal rate target of 3.25%-3.50%. This forecast aligns with the cautious tone conveyed during the Fed's December meeting, indicating a conservative approach to future policy adjustments.
Market Impact and Future Outlook
Barclays' forecast suggests that the Fed may maintain high interest rates until tariff-driven inflationary pressures subside, posing challenges to financial markets and risk assets. In the short term, markets need to continue monitoring inflation data and the actual impact of tariff policies.
Looking ahead, how the Fed balances inflation pressure with economic growth will be a focal point for the markets. Investors should be cautious of short-term fluctuations and prepare for possible policy shifts. The global economy and financial markets are expected to feel the profound effects of this policy trajectory.
