A major British investment firm has become the latest Wall Street player to abandon hopes for Federal Reserve interest rate reductions in 2026, pointing to sustained high energy costs from Middle East conflicts that continue pushing inflation upward.
Barclays announced Monday it no longer expects any monetary policy loosening from the central bank this year. The firm had previously anticipated a quarter-point rate decrease in September 2026, while maintaining its projection for a similar cut in March 2027.
Investment firms across the globe have increasingly walked back their early-year predictions of two U.S. rate reductions in 2026. Current forecasts now range between modest easing and zero cuts for the year, as war-driven inflation concerns make Federal Reserve officials more cautious about policy changes.
The Federal Reserve maintained current interest rates last week in what marked its most contentious policy decision since 1992, reflecting growing worries about elevated energy costs spreading throughout the economy.
American inflation continues running significantly higher than the Fed’s 2% goal, as the continuing Middle East crisis disrupts worldwide oil distribution networks.
“We expect the higher and more prolonged oil price trajectory to boost both headline and core PCE inflation measures, and to weigh somewhat on growth,” analysts at Barclays said in a note.
“Conversely, if the unemployment rate were to rise suddenly…we would expect the FOMC to cut more rapidly and aggressively.”
The investment house also noted that elevated energy costs will dampen consumer purchases, though this impact should be partially balanced by increased business investments in energy exploration and artificial intelligence technologies.
Financial markets currently assign approximately 78.7% odds to unchanged interest rates through year’s end, based on CME Fedwatch tool calculations.
