Barclays expects the Federal Reserve (Fed) to cut interest rates by another 25 basis points in December, based on the minutes of the Federal Open Market Committee (FOMC) meeting held on November 6-7.
The bank said in a note on Wednesday that the minutes indicated the Fed’s bias toward gradual easing, depending on labor market developments and inflation trends.
The minutes show a shift from a 50 basis point “retrieval” in September to a more cautious approach, with the committee now focused on bringing policy rates toward neutral.
The adjustment is driven by a perception that risks to jobs and economic activity have receded.
“This gradual approach allows the committee to adjust policy as the balance of risks changes,” Barclays said, adding that there is uncertainty about the neutral policy rate.
Confidence in the inflation trajectory was evident in the discussion, with participants citing several factors supporting that view, including “reducing business pricing power, stable inflation expectations, and subdued wage pressures.”
However, Barclays also highlighted that some meeting participants expressed concerns that the disinflation process may take longer than expected.
The November jobs report is expected to play a key role in underpinning a decision to cut rates in December, Barclays said.
“This outcome may depend on the extent of the recovery in wage employment,” Barclays said.
Going forward, Barclays expects two more 25 basis point cuts in 2025, one in March and one in December, barring major disruptions from tariffs or policy changes.
In addition, the projection includes two further cuts in 2026, in June and September, respectively, bringing the target range to 3.25%-3.50% by the end of the year.
While the FOMC avoided directly speculating on the Trump administration's upcoming policies, Barclays believes the minutes hint at potential challenges related to the sustainability of recent supply-side gains, which could lead to higher tensions in the future.
