Economists at Barclays now see the Fed cutting rates in September of this year and March 2027.
Previously, they saw a cut in June of this year and another in September.
This shift tracks market pricing, which has shifted substantially since the Iran war and resulting oil price spike. Market pricing now sees just 22.5 bps of easing this year versus 60 bps prior to the geopolitical strife.
A September cut call may prove to be premature as it’s priced at just 56% currently, with December seen as a more-likely timeline. Today’s core CPI showed a monthly rise of 0.4%, matching the December bump. That kind of pace is far from the 0.1652% that would compound to a 2% annual rate.
Worsening the crunch is the latest energy spike, which was not in the January inflation data, though there will be a small amount of help from the removal of the Trump tariffs and replacement by the 10% global tariff for 150 days.
For now, the sentiment around rate cuts is going to shift based on oil prices and the Iran war. Today’s price action suggests a worsening assessment of when the war might end.
I would expect most economists to wait and see how it goes but we will certainly see others tilt their calls towards less easing. In terms of the Fed itself, the focus will soon shift to confirmation hearings from Kevin Warsh. He is in the tough position of having to maintain a dovish stance for Trump (or his nomination will get pulled) while trying to build credibility. That’s not going to be a pretty picture but market pricing suggests that once he gets across the finish line, he will dutifully and independently pursue the inflation target.
Time will tell but right now the less-dovish shift is helping the US dollar and has the Dollar Index above 100 for the first time since November.
