Barclays’ Rate Cut Expectations for 2025

Investing.com — Barclays (LON:BARC) strategists anticipate that the Federal Reserve will implement only one rate cut of 25 basis points in June 2025, following stronger-than-expected economic data and firm inflation expectations that are reshaping the outlook for US monetary policy.

Labor Market Performance

December labor market data have surpassed expectations, with nonfarm payrolls climbing by 256,000, significantly above the consensus estimate of 165,000. Moreover, the unemployment rate has edged down to 4.1%, supported by robust household employment growth. Despite a slowdown in average hourly earnings, payroll income rose at an annualized pace of 5.4%, indicating sustained momentum in consumer spending.

> “Labor demand appears to be on a firmer trajectory than we had thought,” said Barclays strategists led by Jonathan Millar in a note.

Mixed Inflation Signals

The strategists also highlighted mixed inflation signals, contributing to the uncertainty in the current environment. While wage growth appears to be moderating—now below the Fed’s 3.0-3.5% threshold for achieving its 2% inflation target—other indicators reveal persistent pressures. Notably, the ISM input cost index reached its highest level since early 2023, and household inflation expectations for the next year surged to 3.3%.

Barclays stated, “Given such strong data, we now expect the FOMC to cut rates only once this year, by 25bp in June, bringing the fed funds target range to 4.00-4.25% by year-end.”

Rate Cut Forecast Changes

The firm has removed a previously forecasted March rate cut, anticipating that economic activity will slow in the upcoming quarters while inflation continues to decelerate in the first half of 2025. Inflation is then expected to rise again in the second half, likely influenced by tariffs under the Trump administration.

Although there were 100-basis-point cuts from the Fed in 2024, financial conditions remain restrictive. Rising long-term yields and a strengthening dollar have diminished the effects of prior rate reductions, reinforcing Barclays’ view of a gradual monetary easing trajectory.

Future Projections

Looking ahead, the bank anticipates the Fed will pause after the June cut, maintaining the federal funds rate at 4.00-4.25% for a full year. Additional rate cuts are projected to resume in mid-2026 as inflationary pressures further diminish.

> “We still think the federal funds rate will end 2026 at 3.25-3.50%, implying another cut in December next year,” concluded the strategists.