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Barclays now expects the US Federal Reserve to raise interest rates by 25 basis points in September, followed by an additional hike in December. The revised forecast, issued on Friday, follows increasingly hawkish signals delivered by Fed Chairman Kevin Warsh at the Jackson Hole Economic Symposium.

Key Takeaways from the Address

Inflation Stance: Warsh warned that policymakers "will have work to do" if they remain unconvinced that inflation is on a sustainable path toward the central bank's 2% target, marking his clearest indication yet that further tightening is necessary.

Economic Assessment: He emphasized that inflation remains excessively high, broader financial conditions are not sufficiently restrictive, and the labor market is operating at full employment—reaffirming that price stability is the Fed's top priority.

Implicit Tightening: Barclays characterized Warsh’s speech as "clearly leaning hawkish," providing an implicit rationale for further monetary tightening, even as he resisted offering explicit forward guidance on the exact rate path.

Barclays' Revised Outlook

Prior to the symposium, Barclays had projected the Fed would hold rates steady through the remainder of the year. While the brokerage still anticipates that upcoming monthly inflation readings will be "much softer" than the long-term metrics Warsh focuses on, it cautioned that "unfavorable base effects will work against making progress on these metrics until year-end.