Barclays Turns Hawkish, Forecasts Two US Fed Rate Hikes in 2026

The Quick Take

• Barclays reversed its Fed forecast, now calling for 25bp hikes in September and December 2026
• The shift follows hawkish remarks from Fed Chair Kevin Warsh at Jackson Hole on persistent inflation
• Barclays had previously called for unchanged rates, marking a sharp consensus shift on Wall Street

Barclays has overhauled its Federal Reserve call, dropping a hold forecast in favor of two 25-basis-point rate hikes in 2026. The brokerage now expects the Fed to act in September and December, a reversal driven by Fed Chair Kevin Warsh's hawkish posture at the Jackson Hole Economic Symposium. Warsh's emphasis on persistent inflation signals a departure from the more dovish trajectory markets had previously priced in, prompting Barclays to realign its rate models with a tighter policy path. The move reflects a broader reassessment of the US monetary policy cycle.

The market implications of a two-hike cycle extend well beyond US Treasury yields. A rising federal funds rate strengthens the dollar, compresses risk appetite, and increases capital-outflow pressure on emerging economies. For India, which already faces MSCI rebalancing headwinds and elevated crude oil prices following US-Iran tensions, a tighter Fed trajectory reduces the Reserve Bank of India's room to ease domestic rates. Sectors most vulnerable include rate-sensitive financials, real estate, and utilities, while export-oriented IT companies may paradoxically benefit from a stronger dollar boosting rupee revenues.

The decisive forward signal is the August US CPI reading, due in mid-September, which must show persistently elevated core inflation to validate the September hike. Services inflation — particularly shelter and healthcare — is the macro variable that determines whether this thesis holds. Barclays' revised call joins a growing cluster of hawkish Wall Street forecasts emerging after Warsh's appointment. A softer-than-expected September 5 non-farm payrolls print could delay the first hike but is unlikely to derail the December move if inflation data remains sticky above the Fed's 2% target.

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