Barclays: It is expected that the Federal Reserve will pause interest rate cuts after June next year, until mid-2026

ChainCatcher message, Barclays Bank stated that one of the factors that may keep U.S. interest rates high is U.S. (inflation) policy. At the December meeting, some FOMC participants clearly began to reflect expectations regarding tariffs in their inflation forecasts. Furthermore, even among those who did not adjust their official forecasts, many now believe that the balance of inflation risks tends to lean upward.

Although Powell did not explicitly answer to what extent the Federal Reserve tends to view price level increases related to tariffs, we believe that, given the expectation that tariffs will lead to intensified inflation in the second half of 2025, particularly against the backdrop of rising inflation rates in recent years, it will be a challenge for the Federal Reserve to continue cutting rates. We expect the Federal Reserve to pause rate cuts after June next year and to resume cutting rates around mid-2026 after the inflationary pressures caused by tariffs dissipate. In our baseline scenario, we anticipate two 25 basis point rate cuts in 2026, with a terminal rate of 3.25-3.50%.