Barclays Hikes Rate Forecast After Warsh's Hawkish Jackson Hole Comments

Barclays has revised its forecast for Federal Reserve rate hikes this year after former Fed governor Kevin Warsh sounded more hawkish at the central bank's Jackson Hole conference. The bank now expects two quarter-point rate hikes, one in September and another in December. This change is attributed to Warsh's suggestion that financial conditions haven't been tight enough, with the labor market still near full employment.

Warsh argued that if officials can't get comfortable with inflation returning to the 2% target, they 'still have work to do.' Reuters described this as his clearest hint yet that more tightening may be needed. The bank also pointed out 'unfavorable base effects' that could make longer-run inflation measures appear sticky even if the next few monthly readings cool.

The market appears to agree with Barclays, with CME Group's FedWatch tool implying a 60% chance of a September hike. This has led to an increase in short-term Treasury yields and interest-rate swap rates, which can raise borrowing costs for lenders and borrowers alike.