Barclays has changed its forecast for Federal Reserve policy, now expecting two quarter-point rate hikes this year—one in September and another in December. The shift follows remarks by Kevin Warsh, a former Fed governor and current chair, at the central bank's annual Jackson Hole symposium, where he struck a notably hawkish tone on inflation.
Warsh argued that if officials cannot be confident inflation is returning to the Fed's 2% target, they still “have work to do.” He also suggested that financial conditions have not been tight enough, pointing to a labor market that remains near full employment. Reuters described the comments as his clearest hint yet that more tightening may be needed.
Barclays took Warsh's remarks as a signal that the debate within the Fed has shifted. The bank had previously expected no further moves in 2026, but now sees two 25-basis-point increases. A basis point is one-hundredth of a percentage point, so a quarter-point hike is a 0.25% increase in the Fed's benchmark interest rate.
What Warsh's comments mean for the Fed's path
Warsh's speech at Jackson Hole was closely watched because he is seen as a key voice on the Federal Open Market Committee (FOMC), the group that sets interest rates. His emphasis on inflation and the need for tighter policy suggests that the Fed may not be done raising rates, even after a series of increases over the past couple of years.
The Fed has been trying to bring inflation down to its 2% target without causing a sharp economic slowdown. While inflation has cooled from its peaks, it remains above target, and Warsh's comments indicate that policymakers are not yet ready to declare victory.
Barclays' revised forecast aligns with that view. The bank now expects the Fed to act in September and again in December, a more aggressive path than many investors had anticipated. Markets, however, are less certain: they currently price about a 60% chance of a September move, meaning traders see it as likely but not a sure thing.
How markets are reacting
The reaction to Warsh's speech has been felt across asset classes. The dollar has held near recent highs as investors bet on higher U.S. rates, which tend to attract foreign capital. Gold, which is sensitive to interest rates, slipped as traders increased their bets on a September hike. Equity markets have been mixed, with the FTSE 100 steady but other indexes showing little direction as investors weigh the prospect of more tightening.
For everyday investors, the key takeaway is that interest rates may stay higher for longer than previously expected. Higher rates can affect everything from mortgage payments to the returns on savings accounts. They also tend to put pressure on stock valuations, especially for growth companies that rely on future earnings.
Barclays' call is just one forecast, and the Fed's actual decisions will depend on incoming economic data. If inflation continues to cool, the central bank could hold off. But if price pressures persist, more hikes are possible.
What it means for investors
For investors, the shift in Barclays' outlook is a reminder that the Fed's path is far from certain. The 60% market probability of a September hike suggests that traders are not fully convinced, and surprises in either direction could move markets.
If the Fed does hike in September and December, borrowing costs for consumers and businesses will rise further. That could slow economic growth and weigh on corporate profits. On the other hand, higher rates can be good for savers, as banks may offer better yields on certificates of deposit and high-yield savings accounts.
Investors should also watch how other central banks respond. The Fed's moves often influence global markets, and a more hawkish Fed can put pressure on emerging-market currencies and assets. As the dollar strengthens, countries with dollar-denominated debt may face higher costs.
Barclays' forecast is not set in stone. The bank will likely revise its view if economic data changes. But for now, the message from Jackson Hole is clear: the fight against inflation is not over, and more rate hikes could be on the way.
For a deeper look at how Warsh's comments are affecting markets, see our coverage of Warsh's inflation warning and the impact on European stocks.
