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Barclays predicts two more Fed rate hikes after Warsh speech
The brokerage now expects 25 basis point increases in both September and December after the Fed chair's hawkish Jackson Hole remarks
Barclays just scrapped its call for a steady-state Fed and replaced it with something considerably less comfortable. The bank now forecasts two 25 basis point rate hikes before year-end, one in September and another in December, after Fed Chair Kevin Warsh used his Jackson Hole podium to remind everyone that inflation isn’t going quietly.
The revision, published on August 31, marks a notable U-turn from Barclays’ prior expectation of no rate changes in 2026. And the bank isn’t alone in recalibrating. The CME FedWatch tool showed a 60.4% probability of a September hike following Warsh’s speech, a sharp jump from where markets stood just days earlier.
Warsh draws a line on inflation
Kevin Warsh, who succeeded Jerome Powell as Fed chair in late May, delivered what amounted to a policy warning shot at the Jackson Hole Economic Policy Symposium on August 28. His core message was blunt: if policymakers lack confidence that inflation is heading toward the 2% target, there is “work to do.”
Warsh pointed to PCE inflation running at roughly 3.7% on a 12-month basis, nearly double the Fed’s target. He also stressed that the labor market is currently at full employment. The new chair emphasized the need for more restrictive financial conditions.
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Bond markets got the memo immediately. Two-year Treasury yields climbed approximately 12 basis points in the wake of the speech, reflecting a rapid repricing of near-term rate expectations.
Why Barclays changed its call
Barclays cited several factors behind its revised forecast. The bank expects unfavorable base effects to slow progress on inflation metrics as the year winds down. In practical terms, that means the easy year-over-year comparisons that helped headline inflation numbers look better earlier in 2026 are about to disappear.
Even if monthly inflation readings come in softer, the annual figures could look stubborn or even tick higher heading into the fourth quarter. All eyes now turn to the FOMC meeting scheduled for September 16, 2026.