This means a reduction of another 50 basis points next year, which is moderate.

ChainCatcher message, Barclays Bank stated that one of the factors that may keep U.S. interest rates high is U.S. (inflation) policy. In the December meeting, some FOMC participants clearly began to reflect expectations of tariffs in their inflation forecasts. Furthermore, even among those who did not adjust their official forecasts, many now believe that the balance of inflation risks tends to be upward.

Although Powell did not explicitly answer to what extent the Federal Reserve tends to view price level increases related to tariffs, we believe that, given the expectation that tariffs will lead to heightened inflation in the second half of 2025, especially against the backdrop of rising inflation rates in recent years, it will be a challenge for the Federal Reserve to continue cutting rates. We expect the Federal Reserve to pause rate cuts after June next year and to resume cuts around mid-2026 after the inflation pressures caused by tariffs dissipate. In our baseline, we expect two rate cuts of 25 basis points each in 2026, with a terminal rate of 3.25-3.50%.