Barclays has made a significant change in the FED’s policy forecast, predicting that interest rate cuts will begin in March, earlier than its previous expectation of June.
Barclays economists have changed the inflation outlook, forecasting Personal Consumption Expenditure (PCE) inflation at a seasonally adjusted annual rate of 1.9% in the second half of 2024 and forecasting it to reach 2.4% annually by the end of 2024.
According to the bank, the latest Producer Price Index (PPI) data announced indicates a softening trend. This information leads to the prediction that December 2023 core PCE inflation, which will be announced on January 26, will be 0.17% monthly (2.9% annually).
According to the bank, this calculation means that core PCE is running at a seasonally adjusted annual average rate of 1.9% in the last six months of 2023. It is noteworthy that the core PCE inflation data, known as the FED’s preferred inflation measure, is closely aligned with the FOMC’s target.
In the face of these developments, Barclays predicts that the FOMC will cut interest rates by 25 basis points every two meetings starting from March. This forecast is expected to result in the Fed funds target range falling to 4.25-4.50% by the end of 2024 and to 3.25-3.50% by the end of 2025.
*This is not investment advice.