Barclays is forecasting two more interest rate increases from the Federal Reserve before the year is out. The prediction, if it holds, would tighten financial conditions further and push borrowing costs higher for households and businesses.
What the Forecast Says
The British bank's economists expect the Fed to raise its benchmark rate twice more in 2025. That would follow a series of hikes already delivered this year. The forecast is based on the central bank's ongoing effort to bring inflation down to its 2% target, though the bank did not specify the exact timing or size of the moves.
Barclays' outlook stands out because it suggests the Fed is not done yet, even as some market participants have hoped for a pause. The bank's view implies that policymakers see more work to do on prices, and they're willing to accept the side effects that come with higher rates.
The Cost of Tighter Conditions
Two more hikes would ripple through the economy. Borrowing costs for mortgages, auto loans, credit cards, and business credit would climb. That's the direct channel: when the Fed raises its rate, banks pass on the increase to customers.
But the impact goes beyond what consumers pay each month. Tighter financial conditions can slow lending, cool off investment, and put a damper on hiring. Companies facing higher interest expenses may pull back on expansion plans. Households with variable-rate debt could see their payments jump, leaving less room for other spending.
The forecast also carries a warning for economic growth. If rates go up twice more, the cumulative effect could be significant. Growth might slow more than it already has, and the risk of a sharper downturn rises. Barclays didn't quantify the hit, but the direction is clear: higher rates mean less economic momentum.
The timing of the forecast matters. The Fed has been walking a tightrope between fighting inflation and avoiding a recession. Each rate hike increases the pressure on the economy, and the effects are not always immediate. It can take months for the full impact to show up in the data.
For borrowers, the message is to expect higher costs ahead. For businesses, it's a signal to plan for a more expensive environment. And for anyone watching the economy, it's a reminder that the central bank's job is far from over.
The forecast is not a guarantee. The Fed could change course if inflation cools faster than expected or if the labor market weakens sharply. But Barclays' view is a clear statement that the path of rates is still pointing up.
What happens next depends on the data. The Fed's next policy meeting will be watched closely for any hint of a shift. Until then, the prospect of two more hikes hangs over the economy, shaping decisions from boardrooms to kitchen tables.
