Barclays now expects the Federal Reserve to raise interest rates at its September and December meetings, reversing a prior forecast of no changes through the remainder of the year, after Federal Reserve Chair Kevin Warsh delivered a hawkish address at the annual Jackson Hole symposium last Friday. The Wall Street brokerage described Warsh's speech as "notably hawkish" and said it offered an implicit case for further tightening. Each of the two projected increases would amount to 25 basis points, and the Fed's benchmark federal funds rate currently stands at a target range of 3.5% to 3.75%. Barclays noted that near-term monthly inflation prints are likely to look considerably cooler than the longer-horizon gauges Warsh cited, but warned that base effects would undercut any apparent improvement in those annual measures before December. Traders are assigning a 60.4% probability to a September hike, according to CME Group's FedWatch tool. Warsh's Jackson Hole address, his first keynote at the event as Fed chair, drew significant market attention as his clearest opportunity to fill what had been a deliberate communications void since he took office in May. He told the symposium that policymakers would "have work to do" if they lacked confidence that inflation was returning to the Fed's 2% target, and he reinforced his opposition to providing explicit forward guidance, saying, "I stand here today committed to a discipline, not to a decision." The hawkish tone extended beyond Warsh, as Cleveland Fed President Beth Hammack called for higher rates, and at the Fed's July meeting, the FOMC voted 9-3 to hold rates steady, with Hammack among those who dissented in favor of a quarter-point increase. The Fed's next policy decision is scheduled for September 16.
Barclays PLCBarclays' forecast revision reflects its analysis, but no direct impact on its stock.
Barclays forecasts two Fed rate hikes, implying higher policy rate.
Expected rate hikes likely push 10Y yields up, lowering bond prices.
