Barclays Changes Its Forecast#
Barclays has updated its outlook regarding the Federal Reserve's interest rate cuts, now predicting that the central bank will maintain its current rates through 2026. The bank anticipates only a single reduction of 25 basis points (0.25%) in March 2027. This change comes as rising energy prices are slowing down efforts to control inflation.
Energy Prices Impacting Inflation#
Analyst Marc Giannoni explained that the new forecast is influenced by updated projections for oil prices. Barclays’ energy strategist now expects Brent crude oil to peak at $115 per barrel in the current quarter, gradually declining to $100 per barrel by the end of the year. Meanwhile, West Texas Intermediate (WTI) crude is expected to peak at $105 per barrel in the second quarter, averaging $93 per barrel for 2026.
Inflation and Economic Growth Projections#
Barclays has also revised its inflation forecasts. The firm now expects headline Personal Consumption Expenditures (PCE) inflation to reach 3.8% by the end of 2026, which is 0.7 percentage points higher than previously estimated. Core PCE inflation, which excludes volatile items like food and energy, is projected at 3.1%, up by 0.3 percentage points from earlier predictions. Additionally, Barclays has slightly lowered its GDP growth forecast for 2026 to 2.1%.
Labor Market Resilience#
Despite these changes, Barclays believes the labor market will remain strong, providing the Federal Reserve with little reason to implement precautionary rate cuts. Giannoni noted that with core PCE inflation expected to stay above 3% year-over-year, the Fed is unlikely to cut rates this year. The bank anticipates that the Fed will only consider cuts in March 2027, contingent on clear signs that inflation is moving back toward its 2% target. However, potential disruptions in the Strait of Hormuz could pose additional risks to both oil prices and inflation.