Barclays Sees Two More Fed Rate Hikes Following Warsh's Hawkish Speech

Barclays has revised its expectations for US interest rates after Chair Kevin Warsh's recent speech at the Jackson Hole symposium. The brokerage now predicts two more rate hikes this year, with a 25-basis-point increase in September and another in December.

This shift in expectations is attributed to Warsh's 'hawkish' stance on inflation, which he stated was too high, and financial conditions that are not restrictive enough. He emphasized the importance of price stability, citing full employment as consistent with the labour market.

Despite this, Barclays still expects monthly inflation readings to be lower than the longer-horizon measures emphasized by Warsh, but notes that 'unfavorable base effects' will hinder progress on these metrics through year-end.

The brokerage's revised expectations have been reflected in interest rate futures, with investors increasing their bets on a September rate hike following Warsh's remarks. The CME Group's FedWatch tool now shows a 60.4% chance of a rate hike in September, with markets closely watching the Fed's policy decision on September 16.