Barclays says new data unlikely to shift Powell’s hawkish stance

Investing.com -- Barclays said in a note on Friday that the recent U.S. jobs data is unlikely to significantly change Federal Reserve Chair Jerome Powell’s cautious approach on interest rates, despite markets increasingly betting on a cut in September.

The bank told investors that “incoming data, including the latest employment report, do not warrant much change to Powell’s recent hawkish stance,” adding that it sees “no indication that the hawkish FOMC members are changing their tune.”

The bank continues to expect a single 25-basis-point cut in December.

Market pricing currently reflects “at least a 25bp rate cut at the September meeting and more than two cuts before the end of 2025,” according to Barclays.

However, it said market participants are “excessively confident” in a September move, misreading the Fed’s view on labor market conditions and its policy reaction function.

Powell’s July press conference described policy as “only modestly restrictive” with “solid” labor market conditions and little slack, and emphasized the need to keep inflation expectations anchored.

Barclays argued that even with the July jobs report showing slower payroll growth and a rise in unemployment to 4.2%, Powell’s stance would likely have been unchanged.

FOMC members remain divided, with some advocating cuts as early as September and others stressing the risk of persistent inflation. Barclays noted that the September decision is a “close call,” but said it will await “guidance from FOMC speakers at Jackson Hole” before reassessing.

“A reiteration of Powell’s earlier comments would likely reduce expectations of a September cut,” the bank said. Conversely, a focus on weakening labor market conditions could “cement expectations” for such a move.

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