Barclays(US:BCS) Hua Er Jie Jian Wen·2025-10-31 02:25Core Viewpoint - The market's interpretation of Federal Reserve Chairman Powell's recent statements as "hawkish" may be a misjudgment, as Barclays believes Powell's true intention is to correct the market's overconfidence in an imminent rate cut [1][2]. Group 1: Market Reaction - Following the October FOMC meeting, Powell indicated that inflation still faces upward pressure and that there is significant disagreement within the committee regarding a potential rate cut in December, suggesting that a cut is not guaranteed [1]. - The market reacted to Powell's comments with a sell-off in 2-year Treasury bonds, leading to a significant rise in yields and a decline in U.S. stocks [1]. Group 2: Barclays' Analysis - Barclays argues that the market's panic is a misinterpretation, asserting that Powell's intention is not a shift to a hawkish stance but rather to manage the market's overly certain expectations of a rate cut [1][2]. - The analysis team at Barclays views Powell's communication as a strategy to counter the market's assumption that a rate cut is inevitable regardless of economic data [2]. Group 3: Economic Data Insights - Recent economic data does not support a hawkish position; instead, it provides a basis for further rate cuts, with indicators showing a slowdown in labor demand [3]. - Powell acknowledged recent weak data on inflation, with core inflation indicators showing a downward trend. Barclays believes that once tariff impacts are excluded, the underlying core PCE inflation is close to the 2% target [5]. Group 4: Policy Implications - Barclays suggests that if potential inflation is only slightly above the target and the unemployment rate is marginally above the natural rate, then the policy setting should be neutral [8]. - Current market pricing reflects only a cumulative 55 basis points of rate cuts by June 2026, which Barclays considers overly one-sided [8][10].