Barclays: If U.S. inflation expectations get out of control, the uncertainty of the Federal Reserve's interest rate path will increase

Barclays economists suggest that the path of Federal Reserve's interest rates appears uncertain, and if there is evidence indicating unstable inflation expectations, the Fed may reduce or not cut interest rates this year. They wrote in a report that under deflationary pressure, the Federal Open Market Committee might be reluctant to significantly lower interest rates. However, they noted that if labor market weakness becomes more apparent and tariffs have a weaker transmission effect on inflation, it could lead to larger cuts. Barclays still expects the Fed to cut interest rates by 25 basis points each in June and September this year. The institution predicts another 25 basis point reduction in June and September next year depending on whether FOMC sees significant monthly inflation slowdown under reduced tariff-related pressures.