Barclays Cuts U.S. Growth & Raises Inflation Forecast

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Adds another Federal Reserve rate cut to expectations.

Barclays has revised down its U.S. economic growth forecast for 2025 while raising its inflation projections, citing escalating trade policy uncertainty and higher tariffs under the Trump administration.

The bank now expects U.S. GDP growth to slow to 0.7% (Q4/Q4) in 2025, down 0.8 percentage points from its previous projection. At the same time, Barclays raised its core PCE inflation forecast for the year to 3.2% (Q4/Q4), a 40-basis-point increase, while core CPI inflation is seen reaching 3.6% (Q4/Q4), up 30 basis points.

“President Trump has shown more appetite to impose widespread tariffs than we had previously anticipated,” Barclays economists wrote in a note. The firm now assumes a trade-weighted tariff rate of 15%, up from its prior estimate of 10%, as Washington moves ahead with steep duties on Chinese goods, aluminum, steel, automobiles, pharmaceuticals, and semiconductors.

FOMC Policy Adjustments

Despite the elevated inflation outlook, Barclays sees the Federal Reserve cutting rates twice in 2025, in June and September, as a weaker labor market forces the central bank’s hand. The bank had previously forecast only one 25-basis-point cut in June. The unemployment rate is now projected to rise to 4.2% by the end of 2025.

“For 2026, we expect three additional 25bp rate cuts, in March, June, and September,” Barclays noted, bringing the Fed’s policy rate back to a neutral range of 3.00-3.25%.

Trade Policy Uncertainty Weighs on Investment

The report highlights the impact of heightened trade policy uncertainty, which Barclays believes is already dragging down business investment and consumer confidence.

Surveys from the University of Michigan, the Conference Board, and ISM suggest that firms are delaying capital expenditures (capex) while households curb spending due to rising import costs and economic unpredictability.

“Trade policy uncertainty has surged, and it is exerting a drag on consumption and business investment,” Barclays said.

Market Implications

The higher tariffs are expected to reduce purchasing power, increase production costs, and trigger retaliatory measures from trading partners, all of which could weigh on corporate earnings and financial markets.

Equity markets have so far reacted cautiously to the trade developments, but Barclays warns that credit spreads and rate expectations could shift further if economic data weakens.

Barclays' downward revision comes amid broader concerns over the trajectory of U.S. economic growth in a protectionist trade environment. Investors will be closely watching upcoming inflation prints and Fed communications for signs of how monetary policy might evolve in response.