Barclays_Federal_Reserve_Commentary_Not_so_fast

Please see analyst certifications and important disclosures beginning on page 8.Federal Reserve CommentaryNot so fastMarket pricing suggests at least a 25bp cut at the SeptemberFOMC meeting. However, despite the sharp downwardrevisions to the jobs data, unemployment and inflationdevelopments may not change Powell's recent stance much.We retain our call for a December cut as we await guidancefrom Jackson Hole.• At the July FOMC press conference, Chair Powell delivered hawkish comments and suggestedthat the FOMC was in no rush to adjust rates. Since then, Fed communications suggest thatthe FOMC voters remain divided even after downward revisions to the employmentestimates.• Following comments from FOMC speakers and Treasury Secretary Bessent on August 13,markets were pricing in at least a 25bp rate cut at the September meeting and more than twocuts before the end of 2025.• In our view, the incoming data, including the latest employment report, do not warrantmuch change to Powell's recent hawkish stance, and we see no indication that the hawkishFOMC members are changing their tune. While we think the odds have risen, we view marketparticipants as excessively confident in a September cut.• We see the September FOMC decision as a close call, but we retain our call for a single 25bpcut this year, in December, as we await more guidance from FOMC speakers at JacksonHole next week to reassess the risks of an earlier cut. A reiteration of Powell's earliercomments would likely reduce expectations of a September cut, while a new emphasis on aweakening labor market would likely cement expectations for one.Reassessing economic conditions ahead ofSeptember's FOMC meetingAt the July FOMC press conference, Chair Powell delivered hawkish comments and suggestedthat the FOMC was in no rush to adjust rates, which he viewed as only modestly restrictive,alongside accommodative financial conditions. Powell characterized the labor market as solidand emphasized that the relatively low unemployment rate showed little labor market slack,explaining that low payroll job gains could be consistent with full employment. He argued thatpolicy was looking through the tariff-related price increases by not raising rates, andemphasized that the FOMC had an obligation to keep inflation expectations well anchored tomake certain that a one-time increase in the price level does not become an ongoing inflationproblem.Since then, the July employment estimate came in below consensus expectations, along withsignificant downward revisions to the May and June prints.FICC ResearchEconomics14 August 2025SIGNATUREUS EconomicsMarc Giannoni+1 212 526 9373marc.giannoni@barclays.comBCI, USJonathan Millar+1 212 526 4876jonathan.millar@barclays.comBCI, USPooja Sriram+1 212 526 0713pooja.sriram@barclays.comBCI, USColin Johanson+1 212 526 8536colin.johanson@barclays.comBCI, USCompleted: 14-Aug-25, 14:43 GMT Released: 14-Aug-25, 14:47 GMTRestricted - ExternalFIGURE 1. Market expectations of a September rat