Barclays Pivots: No Fed Rate Cuts in 2026

Barclays has abandoned its forecast for Federal Reserve rate cuts this year, now expecting the central bank to remain on hold through 2026 before delivering a single 25-basis-point reduction in March 2027, as elevated energy prices slow progress on inflation.

Forecast Change

Barclays previously expected multiple rate cuts in 2026, but now sees the Fed holding rates steady until next year. The new forecast calls for only one 25-basis-point cut in March 2027.

Analyst Rationale

Barclays analysts believe that persistently high energy prices, particularly oil, are putting upward pressure on inflation, making it difficult for the Fed to cut rates in the near term. Additionally, a strong labor market and continued economic growth reduce the need for further stimulus.

Context

This forecast comes as the Fed has maintained a hawkish stance, with Chair Jerome Powell indicating that the central bank needs to see more evidence that inflation is on a sustainable path downward before cutting rates. Barclays' view contrasts with some other banks that still expect cuts in 2026.

What It Means for Investors

For investors, this means higher interest rates could persist longer, potentially impacting equity valuations, especially in sectors like technology and real estate that rely on borrowing. Conversely, banks may benefit from continued high rates. Investors should monitor inflation data and energy prices closely to gauge future policy direction.