Barclays Pushes Fed Rate Cut Timing to July Amid Shifting Economic Crosscurrents

The Federal Reserve’s path to easing monetary policy has become increasingly fraught with uncertainty, prompting Barclays to adjust its forecast for the next rate cut to July 2025, a month later than its initial June prediction. This shift underscores the delicate balancing act the Fed faces between addressing cooling economic momentum and navigating escalating trade policy risks. Below, we dissect the drivers of this revision and its implications for investors.

The Jobs Market Hang-Up

Barclays’ delayed June forecast stemmed directly from the April U.S. jobs report, which showed nonfarm payrolls surging by 253,000—far exceeding expectations—and the unemployment rate holding steady at 4.2%. These figures signaled a resilient labor market, complicating the Fed’s calculus. While Barclays still anticipates unemployment rising to 4.3% by October 2025, the delayed cut reflects the Fed’s reluctance to ease prematurely in the face of strong hiring data.

Trade Policy as the Wild Card

The revision’s deeper catalyst lies in trade policy uncertainty, particularly under the Trump administration. Barclays now assumes a 15% trade-weighted tariff rate—up from 10%—due to escalating duties on Chinese goods, aluminum, semiconductors, and automobiles. This adjustment slashed its 2025 GDP growth forecast to 0.7%, down 0.8 percentage points, and pushed core inflation projections higher: 3.2% for PCE and 3.6% for CPI by year-end.

The dual impact of tariffs is clear: they suppress business investment and consumer confidence while inflating costs. ISM surveys reveal firms delaying capex plans, while households pare back spending amid rising import prices. Barclays warns of “second-round effects,” such as supply chain bottlenecks and wage pressures, which could further strain the economy.

Inflation’s Mixed Signals

While core inflation remains above the Fed’s 2% target, February’s CPI data offered a flicker of hope: a modest 0.2% monthly rise and 3.1% annual increase, below expectations. Barclays interprets this as evidence of cooling price pressures, justifying rate cuts. However, the Fed’s dual mandate complicates matters: easing too quickly risks reigniting inflation, while waiting too long could deepen labor market softness.

The Fed’s Tightrope Walk

Barclays now forecasts two 25-basis-point cuts in 2025—June and September—followed by three more in 2026. This path hinges on unemployment breaching 4.3% and monthly inflation showing further moderation. The CME FedWatch Tool currently assigns a 58.7% probability to a June cut, but Barclays’ July timeline aligns with broader market skepticism about the Fed’s timing.

Market Implications and Risks

Equity markets have already priced in Fed easing, with the S&P 500 and Nasdaq declining over 1% in recent weeks amid tariff-related volatility. Barclays cautions that further GDP contraction or rising credit spreads could accelerate the Fed’s hand. Meanwhile, nearly 75% of economists surveyed by Bloomberg now anticipate a recession or near-zero growth in 12 months—a risk Barclays does not explicitly call but acknowledges as plausible.

Conclusion: The Fed’s Crossroads

Barclays’ revisions reveal a Fed navigating unprecedented crosscurrents: a labor market clinging to strength, inflation stubbornly above target, and trade policies acting as both an economic drag and a catalyst for Fed action. The bank’s forecast of two 2025 cuts—and three more in 2026—reflects a belief that the Fed will ultimately prioritize labor market stability over inflation concerns as trade-driven risks intensify.

Investors should monitor three key metrics:
1. Unemployment rate trends—a breach of 4.3% by October would solidify the case for June cuts.
2. Core inflation data, particularly monthly CPI readings in Q3 2025.
3. Trade policy developments, including retaliatory measures from U.S. trade partners.

With the Fed’s policy rate projected to drop to 3.00-3.25% by late 2026, Barclays’ analysis underscores a critical truth: trade wars are now as influential as economic data in shaping monetary policy. Investors ignoring this reality may find themselves on the wrong side of the next Fed pivot.