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Barclays forecasts three more Federal Reserve rate cuts as Europe slows

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Economists at Barclays PLC this week revised their outlook for central bank rates and growth across major economies and now project three additional quarter-point cuts by the Federal Reserve in 2019.

[WASHINGTON] Economists at Barclays PLC this week revised their outlook for central bank rates and growth across major economies and now project three additional quarter-point cuts by the Federal Reserve in 2019.

The revised Fed call comes as the firm's UK economists now forecast a non-negotiated exit by Britain from the European Union, resulting in a mild recession in that country next year and two interest-rate cuts by the Bank of England, one this year and one in 2020. Barclays economists have also reduced their euro-zone growth outlook to 0.6 per cent for 2020 from a previous forecast of 1 per cent.

While the bank expects the US economy to grow around 2 per cent next year, the downside risks from slowing global growth and a strengthening dollar will cause the Fed to reduce rates 25 basis points in September, October and December, said Michael Gapen, the bank's chief US economist. Previously, the bank had penciled in two more rate cuts this year.

"This channel of elevated uncertainty, weakness in external demand, and trade policy concerns has grown since the Federal Open Market Committee met in July,'' Mr Gapen said in an interview. "Bond markets are telling you something is afoot and we tend to agree. The world looks a lot shakier than the Fed thought it would be'' when officials met just three weeks ago.

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Federal funds futures traders are also pricing in as many as three cuts for 2019, while economists at major banks see just one more move, according to the median estimate of 65 firms compiled by Bloomberg.

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