Barclays: The Federal Reserve is expected to pause interest rate cuts after June next year until mid-2026

Barclays said one of the factors why U.S. interest rates are likely to remain high is U.S. (inflation) policy. At the December meeting, some FOMC participants apparently began to reflect expectations of tariffs in their inflation projections. Furthermore, even among those who have not adjusted their official projections, many now believe that the balance of inflation risks is tilted to the upside. Although Powell did not explicitly answer to what extent the Fed tends to view it through tariff-related price level increases, we believe that with tariffs expected to cause inflation to intensify in the second half of 2025, especially in the context of rising inflation in recent years, it will be a challenge for the Fed to continue cutting interest rates. We expect the Fed to pause rate cuts after June next year and resume them around mid-2026 after the inflationary pressures from tariffs dissipate. In our benchmark, we expect two 25 basis point rate cuts in 2026 with an end point rate of 3.25-3%.