Barclays: The Fed is expected to stop cutting interest rates after June next year until mid-2026

Barclays said one of the factors that may keep U.S. interest rates high is U.S. (inflation) policy. At the December meeting, some FOMC participants apparently began to reflect expectations of tariffs in their inflation forecasts. Moreover, even among those who did not adjust their official forecasts, many now believe that the balance of inflation risks is tilted to the upside. Although Powell did not clearly answer the extent to which the Fed tends to look through tariff-related price level increases, we believe that it will be challenging for the Fed to continue to cut interest rates when tariffs are expected to cause inflation to rise in the second half of 2025, especially against the backdrop of rising inflation rates in recent years. We expect the Fed to pause rate cuts after June next year and resume rate cuts around mid-2026 after inflation pressures caused by tariffs dissipate. In our baseline, we expect two 25 basis point rate cuts in 2026, with a terminal rate of 3.25-3.50%. (Jinshi)