New York, August 31 — Barclays analysts project two additional Federal Reserve interest rate hikes before the end of 2024 following a speech by former Fed governor Jeremy Warsh, who argued inflation remains above target and warrants tighter monetary policy. Warsh, who served on the Federal Open Market Committee from 2006 to 2008, emphasized persistent core inflation and a tight labor market as justification for continued tightening.
His remarks come amid growing speculation that the Fed may delay cuts despite economic softening, with market participants now pricing in two additional increases before year-end. The Federal Reserve, established in 1913 and headquartered in Washington, D.C., has raised rates aggressively since March 2022 to combat inflation that peaked at 9.1% in June 2022.
As of the latest policy cycle, the federal funds rate stands at 5.25% to 5.50%, the highest level in 22 years, with the central bank’s balance sheet totaling $7.7 trillion as of March 2024. Barclays’ projection reflects a data-dependent approach, with policymakers signaling willingness to act if inflation re-accelerates, and the forecast underscores ongoing uncertainty in the inflation trajectory despite moderation from peak levels.
The U.S. economy added 228,000 jobs in March 2024, reinforcing labor market resilience, while core inflation, excluding food and energy, rose 3.8% year-over-year in February 2024, still above the Fed’s 2% target. Warsh, a former Brookings Institution fellow and MIT economics PhD, has been vocal in advocating for sustained high rates until inflation is convincingly tamed, with his speech at the American Enterprise Institute on April 3, 2024, reigniting debate over the Fed’s path forward.
The central bank has raised rates by 525 basis points since March 2022, the most aggressive tightening cycle in four decades, with the next FOMC meeting scheduled for May 1, 2024, where no hike is currently expected, but markets remain sensitive to any shift in tone. The Fed has projected one rate cut in 2024, though many analysts now question its feasibility, with the current cycle defying historical patterns supported by strong consumer spending and wage growth.
Inflation has declined to 3.2% as of February 2024, but services sector pricing pressures remain elevated, and the Fed’s preferred gauge, the PCE price index, rose 2.8% year-over-year in February 2024. The Fed’s dual mandate of price stability and maximum employment continues to guide its decisions, with the unemployment rate at 3.8% in March 2024, near a 50-year low.
The central bank has indicated it will not cut rates until it is confident inflation is moving sustainably toward 2%, and it will not hesitate to raise rates if inflation expectations become unanchored. Barclays’ forecast assumes no major financial disruption or geopolitical shock, with the wars in Ukraine and Middle East introducing supply-side risks that could delay disinflation.
The Fed has never before sustained rates above 5% for more than two years without triggering a recession, yet the current cycle has defied historical patterns. The market expects the next rate hike to occur in June 2024, according to CME FedWatch Tool probabilities, with the Fed’s communication strategy shifting toward greater transparency. The next major economic report, the April 10, 2024, CPI release, will be closely watched for clues, with the Fed maintaining its projection of 2024 GDP growth at 1.7%.
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