JPMorgan forecasts 2027 Fed hike; Barclays, Goldman postpone rate cut calls

[NEW YORK] JPMorgan predicts that the US Federal Reserve’s next move will be a rate hike in 2027, while Barclays and Goldman Sachs joined Morgan Stanley in postponing rate cut calls to mid-2026, as the data suggested that the labour market was not rapidly deteriorating.

JPMorgan withdrew its outlook for a January cut, forecasting the Fed’s next move to be a 25-basis-point (bps) rate hike in the third quarter of 2027. Macquarie reiterated its forecast of a rate hike in the December 2026 quarter.

The data on Friday (Jan 9) showed that US employment growth slowed more than expected in December.

However, a decline in the unemployment rate to 4.4 per cent and solid wage growth suggested that the labour market was not rapidly deteriorating, boosting expectations that the central bank will leave borrowing costs unchanged at its January meeting.

“If the labour market weakens again in the coming months, or if inflation falls materially, the Fed could still ease later this year,” JPMorgan said in a note on Friday.

It added: “However, we expect the labour market to tighten by the second quarter, and the disinflation process to be quite gradual.”

Traders are betting on a 95 per cent chance for the Fed to keep rates unchanged at its January meeting, indicated the CME FedWatch tool, up from 86 per cent before the data.

Goldman Sachs and Barclays, which had forecast cuts in March and June, now expect a 25 bps reduction in September and December, respectively, following the cut in June.

“If the labour market stabilises as we expect, the Federal Open Market Committee will likely shift from risk-management mode to normalisation mode,” Goldman said in a note on Jan 11, as it lowered its 12-month US recession probability from 30 per cent to 20 per cent.

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Morgan Stanley also revised its forecast on Friday to rate cuts in June and September, from January and April.

Wells Fargo and the Bank of America (BOA) Global Research both maintained their bets of a cut in March to June and June to July, respectively.

“(The) mix of data is consistent with our view that breakeven job growth might be falling (labour supply shock) even faster than the Fed will concede,” the BOA added.

Meanwhile, the tussle between US President Donald Trump and Fed chair Jerome Powell intensified, after Powell on Jan 11 said that the Trump administration had threatened him with a criminal indictment, stoking worries about the central bank’s independence.

Powell called this move a “pretext” to gain more influence over interest rates that Trump wants to be cut dramatically. REUTERS