Barclays pivots, says no Fed rate cuts in 2026

Investing.com -- 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.

Analyst Marc Giannoni told investors in a note on Monday that the revision reflects an updated oil price baseline from Barclays' energy strategist, who now projects Brent crude peaking at $115 per barrel in the current quarter before edging down gradually to $100 per barrel by the fourth quarter, averaging $100 per barrel for the full year.

WTI is projected to peak at $105 per barrel in the second quarter, averaging $93 per barrel for 2026.

Barclays now forecasts headline PCE inflation at 3.8% on a fourth-quarter-over-fourth-quarter basis in 2026, 0.7 percentage points faster than its prior projection, with core PCE inflation at 3.1%, 0.3 percentage points above its previous estimate.

The firm trimmed its 2026 GDP growth forecast by 0.3 percentage points to 2.1% but said the labor market should remain resilient, giving the Fed little justification for precautionary cuts.

"With core PCE inflation now projected above 3% y/y through the end of the year, with a monthly run-rate above 2.5% annualized and a resilient labor market, we no longer think the FOMC will be in a position to cut rates this year," Giannoni wrote.

Barclays expects the Fed to cut in March 2027 once it sees clear evidence inflation is returning toward its 2% target, with risks to the oil and inflation outlook still skewed to the upside if Strait of Hormuz disruptions persist.

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