Barclays Sees No Fed Rate Cuts in 2026

Barclays now anticipates the U.S. Federal Reserve will hold interest rates steady through next year, reversing a prior projection of a September 2026 rate cut. The brokerage attributes this extended pause to persistent inflation driven by elevated energy prices, complicating the central bank's path back to its 2% target [1].

Forecast Revision and Inflation

Barclays updated its forecast on May 4, 2026, scrapping a predicted 25-basis-point reduction in September 2026 in favor of a hold [1]. The firm now expects a reduction in March 2027, aligning with a broader reassessment among financial institutions as inflation continues to run above the Federal Reserve’s 2% target [1]. Elevated energy prices, specifically those linked to global supply disruptions, are cited as the primary factor complicating the policy environment [1]. Barclays analysts indicated that prolonged higher oil prices are expected to support both headline and core inflation measures, influencing personal consumption expenditures—the Fed's preferred benchmark [1].

Market Reaction and Economic Impact

Financial markets have adjusted rapidly to this outlook, with CME FedWatch data indicating traders assign a high probability that the Federal Reserve will maintain current rate levels through the end of 2026 [1]. This marks a departure from earlier in the year when participants anticipated multiple rate cuts. Consequently, Treasury yields have remained elevated due to reduced demand for longer-duration bonds, while the U.S. dollar has maintained strength against major currencies as higher relative rates support capital inflows [1]. The economic picture remains mixed, as consumer spending moderates due to higher costs while business investment in energy and infrastructure remains stable [1].

What to watch

• Crude oil prices and global supply disruptions for signs of easing or further volatility that could alter inflation trajectories.
• Personal consumption expenditures data for trends in energy cost pass-through to core inflation measures.
• Federal Open Market Committee statements for shifts in balancing inflation risks against economic growth considerations.

The revision underscores how external energy shocks are constraining the Federal Reserve's ability to pivot policy, extending a period of restrictive financial conditions until global supply chains stabilize.