Barclays delays Fed rate cut forecast to September on inflation.

Investing.com - Barclays has pushed back its forecast for Federal Reserve interest rate cuts, now expecting the first reduction in September rather than June, citing higher inflation projections and risks from the Iran conflict.

The bank now anticipates the Federal Open Market Committee will deliver only one 25-basis-point rate cut this year, lowering rates to 3.25%-3.50% in September, with a second 25-basis-point cut delayed to March 2027 from December. The revised outlook reflects an upward revision to PCE inflation forecasts and increased upside risks to headline inflation due to the Iran war.

Core PCE inflation registered 0.36% month-over-month in January, with CPI details suggesting another strong print of 0.45% in February. Barclays expects core PCE to reach 2.8% on a Q4/Q4 basis this year, a tenth of a percentage point above what it anticipates the median Summary of Economic Projections will show.

Surging oil prices amid the Iran conflict have led Barclays to forecast headline PCE inflation reaching 3.4% year-over-year in Q2 and remaining above 3% for the rest of the year. WTI futures indicate only a partial reversal of oil price increases through year-end.

Barclays expects the FOMC will largely look through rising headline inflation and not raise rates this year, but believes committee members will find it difficult to gain confidence that underlying inflation is returning to the 2% target before accumulating sufficient evidence of core inflation moderation. The bank expects payroll employment gains to remain low and the unemployment rate to move sideways before gradually declining.