FED: Barclays Removes One 2026 Fed Cut From Path On Tariff Inflation

In contrast with market pricing now looking for increasingly aggressive Fed cuts, Barclays now sees a slightly more hawkish Fed following the Liberation Day tariff announcements: they now take one rate cut out of their 2026 projection, leaving them to see two 25bp cuts in 2025 and two in 2026.

• The reason is that they while they see growth "consistent with a recession" this year, with GDP contracting 1.5% in Q3 and 0.5% in Q4, they also see higher inflation due to tariffs and a recovery of growth in 2026.
• "we project 2025 core CPI inflation to reach 4.1% Q4/Q4; core PCE inflation to rise to 3.7% Q4/Q4; real GDP to decrease 0.1% Q4/Q4, consistent with a recession; and the unemployment rate to rise to 4.6% by Q4..."For 2026, assuming tariffs remain little changed, we expect real GDP to recover and grow 1.5% Q4/Q4 for the year and the unemployment rate to decline to 4.5%. We also expect tariffs to continue to add to inflation pressures in 2026, along with risks that inflation expectations drift up."