Barclays: Powell intends to break the "inevitable rate cut expectation", and data supports more rate cuts.

Barclays believes that the market's hawkish interpretation of Powell's statements is a misjudgment. His true intention is to correct the market's excessive confidence that “interest rate cuts are a done deal.” The latest economic data actually supports the Federal Reserve's continued rate cuts. This article is based on a piece written by Wall Street Journal and organized and drafted by Deep Tide TechFlow. (Background: Federal Reserve Chairman Powell: AI is not a bubble, tech companies have real cash flow, and a good economy does not mean immediate rate cuts.) (Background Supplement: Why did Bitcoin drop below $110,000 after the Federal Reserve announced the “end of quantitative tightening” and a rate cut? What did Powell say?) Barclays believes that the market's hawkish interpretation of Powell's statements is a misjudgment. The market's “hawkish” interpretation of the latest statements from Federal Reserve Chairman Powell may be a misjudgment. Barclays believes that Powell's true intention is to correct the market's excessive confidence that “interest rate cuts are a done deal.” After the October FOMC meeting, the Federal Reserve Chairman stated at the press conference that inflation still faces upward pressure in the short term, the job market faces downside risks, and the current situation is quite challenging. There are still significant differences among committee members regarding whether to cut rates again in December, and rate cuts are not guaranteed. The market reacted with a hawkish interpretation to this statement, leading to a sell-off of 2-year U.S. Treasury bonds and a significant rise in yields, while U.S. stocks retreated. On October 31, according to news from Chase Trading Desk, Barclays Bank presented a clear opposing opinion in its latest research report, stating that the market's panic may be a misjudgment, and Powell's true intention is not to shift to a hawkish stance but to manage the market's overly “certain” expectations for rate cuts. The analysts from this bank's team, led by Anshul Pradhan, believe that this is a communication strategy aimed at breaking the market’s assumption that rate cuts are guaranteed regardless of the data. The latest economic data shows that labor demand continues to weaken, and the potential inflation level is not far from the 2% target, all of which support the Federal Reserve's continued rate cuts. Barclays pointed out in its research report that the current market pricing is too hawkish and fails to adequately reflect the risk of a significant weakening in the labor market and the risk that the new Federal Reserve Chairman may adopt a more dovish stance. It is not a hawkish shift but a break from the market's “conclusion.” Barclays noted in the report: “We believe that the main motivation is to refute the market's assumption that a rate cut in December is a done deal, rather than a hawkish shift in the Fed's response to the data.” In other words, the Federal Reserve wants to reaffirm that its decisions rely on data rather than being held hostage by market expectations. Powell made it clear that the Federal Reserve will respond to the slowdown in labor demand, and this is precisely what is happening. The report emphasizes that the latest economic data not only does not support a hawkish stance but also provides a basis for further rate cuts. Regarding the labor market, leading indicators such as Indeed job postings and labor gaps (jobs plentiful vs. hard to get) all indicate that demand is slowing down. In terms of inflation, Powell also acknowledged the recent weak data. Core inflation indicators have shown a downward trend. Barclays analysis believes that once tariff impacts are excluded, the market-based core PCE inflation is close to the 2% target. “In summary, if potential inflation is only slightly above the target by a few tenths of a percentage point, and the unemployment rate is only a few tenths of a percentage point higher than the natural unemployment rate (NAIRU), then the policy setting should be neutral.” This means that under the current data context, a restrictive monetary policy is unnecessary. Barclays observes that the market is currently only pricing in a cumulative 55 basis points of rate cuts by June 2026, and this view is “too one-sided.” The current market expectations suggest only a 35 basis point cut by March 2026 and a 55 basis point cut to 3.3% by June. The implied distribution in the options market shows that there is a divergence in the market regarding the number of rate cuts in March and June, with the modal expectation being only one cut by June. Related reports include warnings from the Federal Reserve's mouthpiece: A government shutdown complicates Fed decision-making, and year-end rate cuts may be canceled? The minutes from the September FOMC meeting contain hawkish signals: two more rate cuts are expected in 2025, but the restrictions on inflation are insufficient. U.S. August PCE meets expectations, and the market bets that the Fed will continue to cut rates, with Bitcoin and Ether spiking and then retreating. (Barclays: Powell aims to break the “inevitable rate cut expectation,” and data supports more cuts.) This article was first published on BlockTempo, the most influential blockchain news media.