Fed’s "dot plot" seen projecting three rate cuts by the end of 2025 - Barclays

Investing.com - The Federal Reserve’s latest median projections for interest rates are likely to call for three borrowing cost cuts by the end of this year, according to analysts at Barclays.

In a note to clients, the analysts added that policymakers will likely keep their long-run expectations in the key "dot plot" of rate predictions unchanged. An updated dot plot is due out on Wednesday, along with a much-anticipated rate decision.

Officials previously estimated in June that rates would be drawn down by half a percentage point from the current range of 4.25% to 4.5% in 2025, but slightly slowed the pace for next year and 2027 to a single quarter-percentage-point reduction in each.

Seven of the Fed’s 19 policymakers even saw no need for rate cuts, reflecting a split that Chair Jerome Powell said at the time was reflective of a "foggy" economic outlook due to uncertainty around the impact of sweeping U.S. tariffs. Economists have flagged that the levies could drive up inflation and weigh on economic activity.

Headline U.S. consumer price growth accelerated in August, but the uptick was largely in line with estimates. The Barclays analysts said that tariff-driven price increases are "being staggered," with a "shallower peak" for inflation seen in September and October.

But, in his post-decision press conference, Powell is anticipated to focus more a recently weakening U.S. job market, which has spurred on bets that the Fed will move to cut rates in a bid to encourage investment and hiring. Powell is tipped to emphasize that the softening labor picture is due to a "supply shock," instead of a sudden collapse in demand for workers, the Barclays analysts said.

Markets are now all but certain that the U.S. central bank will slash borrowing costs by at least 25 basis points at the end of its latest policy gathering on Wednesday, while there is also an outside chance of a deeper half-point drawdown. The rate-setting Federal Open Market Committee will begin its two-day meeting today.

"The Fed meeting, in our view, is likely to pass without a major, market-moving surprise," the Barclays analysts wrote.

Heading into the meeting, they backed an "overweight" stance on risk assets despite equities having recently notched fresh record peaks. They argued that there is no "near-term catalyst" to dislodge the effect of a combination of Fed rate cuts and enthusiasm over artificial intelligence on investor sentiment.