Barclays, BNP pivot to September Fed rate cut on Powell’s labour warning

Published Mon, Aug 25, 2025 · 01:16 PM

Barclays and BNP Paribas expect the US Federal Reserve to make a 25-basis-point interest rate cut in September, according to notes dated on Friday (Aug 22), citing chair Jerome Powell’s shift in tone at Jackson Hole towards rising risks in the labour market.

Barclays pulled forward a previously expected September 2026 cut to September 2025, saying Powell’s speech introduced “an easing bias” and raised the bar for not cutting. “We now expect two 25 bp cuts this year, in September and December,” said Barclays economists led by Jonathan Millar.

BNP Paribas also reversed its long-standing call for the Fed to stay on hold, forecasting cuts in both September and December.

“Powell made clear that the Fed intends to deliver a ‘fine-tuning’ rate cut in September unless the data dictates otherwise,” wrote BNP economists, led by Calvin Tse.

Powell’s remarks at the Jackson Hole symposium emphasised a shift in the Fed’s reaction function, with greater weight now placed on labour market risks. “This unusual situation suggests that downside risks to employment are rising,” Powell said.

He warned that such risks could materialise quickly in the form of layoffs and a spike in unemployment.

Deutsche Bank, in a note dated Friday, also expects a 25-bp cut each in September and December 2025, compared with its prior forecast of only a December cut.

Markets are now pricing in an 87 per cent chance of a quarter-point rate cut at the September policy meeting, according to the CME FedWatch Tool, up from 75 per cent before Powell’s speech.

The rate-setting Federal Open Market Committee (FOMC) is scheduled to meet again on Sep 16 and 17. REUTERS

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