Barclays sees 25bp Fed rate cut in December but path ahead looks more complicated

Investing.com -- Barclays anticipates a 25 basis point rate cut from the Federal Reserve during its December meeting, citing signs of cooling in the U.S. labor market.

"A rise in U.S. unemployment tees up a 25bp Fed cut next week," the bank states.

However, Barclays (LON:BARC ) analysts caution that the trajectory for further cuts in 2024 may face hurdles due to restrictive policies such as immigration constraints and tariffs, potentially limiting cuts to two more after December.

"The path ahead looks more complicated," stated Barclays. The bank also expects upcoming U.S. CPI data to show core inflation remaining steady at 0.3% month-over-month, while the headline measure increases to 2.7% year-over-year due to rising gas prices.

These inflation figures, combined with labor market trends, will play a pivotal role in shaping monetary policy decisions in the months ahead, according to the bank.

Globally, Barclays highlights ongoing fiscal and monetary adjustments in China, where the Central Economics Work Conference may announce further support measures for the struggling economy.

Elsewhere, Barclays sees the European Central Bank cutting rates by 25 basis points this week and potentially by 50 basis points in early 2025 if economic conditions deteriorate rapidly.

Barclays maintains a cautious stance on financial markets, recommending curve steepeners in U.S. rates and favoring long positions in 10-year Spanish bonds relative to French bonds within Europe.

The report also anticipates some relief for the dollar and easing depreciation pressures for the Chinese yuan , with South Korea's won expected to remain volatile amid ongoing political tensions.

Source: Investing.com