Key Highlights

• Barclays now expects the Federal Reserve to raise interest rates by 25 basis points in both September and December, reversing its prior forecast of unchanged rates for the rest of the year.

• The forecast shift follows Fed Chair Kevin Warsh's Jackson Hole remarks, which Barclays described as "notably hawkish" despite his continued refusal to provide explicit forward guidance.

• Warsh said policymakers would "have work to do" if they lacked confidence Inflation was returning to the Fed's 2% target, calling it his clearest signal yet that further hikes may be needed.

• Markets are pricing in a 60.4% chance of a September rate hike, according to the CME Group's FedWatch tool, with attention now turning to the Fed's September 16 policy decision.

A Reversal in Barclays' Rate Outlook

Barclays said Friday that it now expects the Federal Reserve to raise interest rates by 25 basis points in both September and December, marking a significant shift from its prior forecast of unchanged rates through the remainder of the year. The revised outlook follows Fed Chair Kevin Warsh's latest remarks at the central bank's Jackson Hole symposium, which the brokerage said signaled a notably more hawkish policy stance.

Warsh told the symposium on Friday that policymakers would "have work to do" if they lacked confidence that inflation was returning to the Fed's 2% target, a comment Barclays and other Market Participants viewed as his clearest signal yet that further rate hikes may be necessary. Warsh said inflation remained too high, described financial conditions as not restrictive, and characterized the labor market as consistent with full employment, reinforcing that price stability remains the Fed's central priority.

Barclays Sees an Implicit Case for Tightening

Barclays described Warsh's speech as "notably hawkish," noting that it offered an implicit case for further tightening even though Warsh continued to resist providing explicit forward guidance on the Fed's future policy path. The brokerage said it still expects monthly inflation readings to come in "much softer" than the longer-horizon measures Warsh emphasized in his remarks, but cautioned that unfavorable base effects would likely work against further progress on those metrics through the end of the year.

Markets Price In Higher Odds of a September Move

Following Warsh's remarks, investors have increased their bets on a rate hike at the Fed's upcoming policy meeting. Markets are currently pricing in a 60.4% probability of a 25 basis point increase in September, according to the CME Group's FedWatch tool, reflecting a notable shift in sentiment compared to expectations earlier in the month.

Interest rate futures markets have also adjusted accordingly, with investors now placing greater weight on the possibility of sustained tightening rather than a pause. Attention has since turned to the Fed's policy decision on September 16, which is expected to offer further clarity on the central bank's rate path for the remainder of the year.

A Shift That Could Ripple Through Broader Markets

Barclays' revised forecast reflects growing conviction among some market participants that the Fed under Warsh's Leadership is prepared to prioritize inflation control over concerns about slowing economic momentum. Should the Fed follow through with hikes in both September and December, it would mark a more aggressive tightening path than many investors had anticipated just weeks earlier, with implications likely to extend across bond markets, borrowing costs, and broader financial conditions heading into year-end.