Barclays strategists have significantly revised their forecast for the U.S. economy after the recent U.S.-China tariff de-escalation, now projecting no recession in 2025. They also foresee softer inflation and anticipate only one Fed rate cut this year.

Trade Deal Effects on Inflation

In a client note published Tuesday, Barclays noted that mutual tariffs will drop from approximately 155% to around 40% on Chinese goods and similarly on U.S. exports, levels they suggest will remain relatively steady for the medium term.

“We predict that inflation will increase less sharply and foresee no recession,” Barclays stated, highlighting the relief to input prices and global supply networks.

Updates on Fed and Inflation Expectations

• Federal Reserve Cuts: A forecast for one 25 basis point cut in December 2025 has been made (a reduction from two previously expected cuts).

• Core PCE Inflation: The 2025 inflation forecast has been adjusted downward to 3.3% from 3.8%.

• GDP Growth: Expectations for 2025 GDP growth have been raised to 0.5%, eliminating a prior assumption of a slight downturn in the second half of the year.

• Unemployment: A peak unemployment rate of 4.3% is expected, with a slowdown in job creation while avoiding job losses.

Barclays projects up to three additional 25 basis point cuts in 2026—scheduled for March, June, and September—ultimately reducing the funds rate to a range of 3.25% to 3.50% by the end of the year.

Investors: What to Monitor

Key macro releases will provide insight into the accuracy of Barclays’ upgraded forecasts:

• Personal Consumption Expenditures (PCE) inflation

• GDP revisions

• Labor market data

The timing and consensus estimates for these critical economic indicators can be tracked on entreprenerdly.com, ensuring that investors stay aligned with the Fed’s evolving outlook.