Barclays rules out Fed cuts
- Barclays dropped its call for a September 2026 Fed cut on May 4, saying oil-driven inflation from the Iran war now keeps rates unchanged all year. - The bank still sees the first quarter-point cut only in March 2027, while traders have shifted to a 37% chance of a hike by then. - The bigger shift is narrative: markets are moving from “when do cuts start?” to “could the next move actually be tighter?”
Interest rates are back to being an oil story. Barclays just scrapped its forecast for a 2026 Federal Reserve rate cut and now expects the Fed to sit tight through the year. The reason is simple, but nasty — higher energy prices feed inflation fast, and the Fed does not like easing into that. What changed this week is that one more big Wall Street shop decided the old “cuts are coming” script no longer fits. (kitco.com) ### What did Barclays actually change? Barclays had been looking for a 25-basis-point cut in September 2026. On May 4, it pulled that forecast and said there would be no Fed easing at all in 2026. It kept one cut in March 2027, which tells you this is not a “rates stay high forever” call. It is a “the inflation problem lasts longer than we thought” call. (kitco.com) ### Why does oil matter so much here? Because oil is one of the quickest ways a geopolitical shock reaches U.S. inflation. Higher crude pushes up gasoline and diesel first, but it does not stop there — shipping, airfares, manufacturing, food distribution, and utility bills all start feeling it. Th(kitco.com)k. Basically, if headline inflation gets kicked higher by fuel, rate cuts become much harder to justify. (kitco.com) ### Why are people tying this to Iran? The market story here is not just “oil is expensive.” It is “oil is expensive for a geopolitical reason that may not fade quickly.” Barclays pinned its change on persistently high energy prices tied to the Iran war. That matters because a temporary spike can (kitco.com)sing inflation and Fed expectations together. (kitco.com) ### Are markets really pricing out cuts? Pretty much. One market snapshot this week showed traders largely removing expectations for 2026 cuts and assigning a 37% chance of a hike by March 2027. Another live probabilities tracker on May 5 still showed only a very small amount of net easing priced (kitco.com)market has turned from “how many cuts?” to “what if the next surprise is no cuts, or even a hike?” (zawya.com) ### Is Barclays out on its own? No — and that is why this matters. Barclays is joining a growing camp rather than making a lonely contrarian bet. J.P. Morgan’s research team has also been arguing for the Fed to hold through 2026, with a possible 25-basis-point hike in 2027 instead of cuts arriving sooner. When multiple big shops converge on the same broad path, investors start treating that path as the new base case. (jpmorgan.com) ### What does this mean for borrowers? It means the “relief is coming soon” story gets weaker. Mortgage rates do not move one-for-one with the fed funds rate, but they do care about inflation expectations and longer-term Treasury yields. If investors think oil will keep inflation sticky, longer borrowing costs can stay high even wit(jpmorgan.com)ing longer than they expected. (zawya.com) ### What is the real takeaway? The Fed has not suddenly become hawkish for fun. The problem is that an energy shock can keep inflation uncomfortably alive even if the rest of the economy is only middling. Barclays’ forecast change matters because it shows how fast Wall Street can reprice the whole rate path when oil, geopolitics, and inflation start reinforcing each other. (kitco.com) ### Bottom line Barclays is saying the Fed probably cannot cut in 2026 without risking an inflation mistake. The bigger message is that markets are starting to agree. (kitco.com)
