Barclays: It is expected that the Federal Reserve will pause rate cuts after June next year, until mid-2026

On December 22, Barclays Bank stated that one of the factors that could keep U.S. interest rates high is U.S. (inflation) policy. At the December meeting, some FOMC participants apparently began to reflect their expectations for tariffs in their inflation forecasts. In addition, even among those who have not adjusted official forecasts, many now believe that the balance of inflation risks tends to be upward. Although Powell did not explicitly answer how much the Fed tends to view through tariff-related price level increases, we believe that it will be a challenge for the Fed to continue cutting interest rates under circumstances where tariffs are expected to exacerbate inflation in the second half of 2025, especially against a backdrop of rising inflation rates in recent years. We expect the Fed will pause rate cuts after June next year and resume them around mid-2026 after tariff-induced inflationary pressures dissipate. In our baseline scenario, we anticipate two 25 basis point rate cuts in 2026 with terminal interest rates at 3.25-3.50%.