Barclays Reverses Course on Fed Rates
Barclays has changed its outlook for U.S. monetary policy, now predicting the Federal Reserve will raise interest rates by a quarter of a percentage point at both its September and December meetings. This marks a departure from its earlier stance, which anticipated no changes for the rest of 2026. The revision follows a speech by Fed Chair Kevin Warsh at the Jackson Hole symposium, which the brokerage described as notably hawkish, according to Reuters.[S1][S2]
During his Friday address, Warsh indicated that if there was any doubt about inflation moving back to the Fed's 2% goal, policymakers would need to take action. He described inflation as still elevated, financial conditions as not tight enough, and the labor market as being at full employment. Barclays viewed these comments as a subtle push for more rate increases, despite Warsh's continued refusal to offer explicit forward guidance.[S1][S2]
Inflation Data and Market Expectations
Even with its hawkish outlook, Barclays anticipates that monthly inflation data will be considerably milder than the longer-term indicators Warsh highlighted. However, the firm cautioned that adverse base effects would slow progress on annual inflation figures for the rest of the year. This implies that even if monthly numbers cool, the year-over-year metrics may not show much improvement.[S1][S3]
Market expectations have also shifted. According to CME Group's FedWatch tool, there is now a 60.4% chance of a rate hike at the September meeting. Interest-rate futures have similarly shown increased odds of a near-term increase. The Fed's next policy decision is set for September 16, and investors will be watching for clearer signals on the rate trajectory.[S1][S3]
Warsh's Jackson Hole Address
Warsh's keynote at Jackson Hole was his first as Fed chair and drew significant market attention. He reiterated his opposition to explicit forward guidance, declining to outline specific conditions for policy action. He emphasized his commitment to a disciplined approach rather than a preset course. While acknowledging that this summer's inflation readings were better than expected, he said they did not signal a significant change in underlying price pressures.[S2]
After his remarks, the 2-year Treasury yield climbed, and traders boosted their bets on a September rate increase. The hawkish tone was echoed by Cleveland Fed President Beth Hammack, who also called for higher rates, noting that inflation had been above the Fed's 2% target for more than five years. At the July FOMC meeting, the vote was 9-3 to hold rates steady, with Hammack among those favoring a quarter-point hike.[S2]
