US Stock Market: Barclays turns hawkish on Fed, sees two rate hikes in 2026

Barclays expects the U.S. Federal Reserve to raise interest rates by 25 basis points in September and again in December, reversing its earlier view that the central bank would keep rates unchanged for the rest of the year, Reuters reported.

The shift follows recent remarks from Fed Chair Kevin Warsh that strengthened expectations of further monetary tightening. His comments at the Federal Reserve’s Jackson Hole symposium indicated that policymakers remain concerned about inflation and could consider additional rate increases if price pressures fail to move convincingly toward the central bank’s 2% target.

Read more: US Stock Market: Warsh signals Fed may need to raise rates if inflation remains elevated


Warsh Signals Focus on Inflation

According to Reuters, Warsh’s remarks reflected a more hawkish assessment of the U.S. economy. He indicated that inflation remained elevated, financial conditions were not sufficiently restrictive, and labour-market conditions were broadly consistent with full employment.

The combination of persistent inflation and a resilient labour market has complicated the Fed’s policy outlook, increasing the possibility that policymakers could maintain or increase borrowing costs rather than move toward monetary easing.

Barclays Changes Its Rate Outlook

Barclays described Warsh’s latest speech as notably hawkish and said it provided an implicit argument for further monetary tightening, Reuters reported. The brokerage had previously expected the Fed to leave interest rates unchanged through the remainder of the year.

Barclays nevertheless expects monthly inflation readings to soften considerably. However, the brokerage warned that unfavourable base effects could make progress on longer-term inflation measures more difficult through the end of the year.

The shift in Barclays’ forecast highlights the growing importance of incoming inflation and labour-market data in determining the Fed’s next moves.

Markets Raise Bets on September Hike

Financial markets have also increased expectations of a September rate increase following Warsh’s comments. According to the CME Group’s FedWatch tool, markets were pricing in a 60.4% probability of a rate hike in September, Reuters reported.

Interest-rate futures have similarly reflected stronger expectations for a near-term increase in borrowing costs, Reuters reported.

September Fed Meeting in Focus

Attention is now turning to the Federal Reserve’s policy meeting scheduled for September 16, when investors will look for clearer signals on the trajectory of interest rates.

The decision will be closely watched as markets assess whether persistent inflation pressures and a relatively firm labour market are strong enough to prompt the Fed to tighten policy further. Barclays’ revised outlook suggests the debate has shifted from whether rates will remain unchanged to how much additional tightening may be required to bring inflation back toward the Fed’s target, Reuters reported.

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