Barclays expects US Fed to deliver two rate cuts this year on softer labor market activity

(Reuters) -Softer U.S. labor market conditions against the backdrop of trade-policy uncertainty have prompted Barclays to raise its expectations to two rate cuts by the Federal Reserve for the year from one.

The brokerage is expecting two quarter-point rate cuts in June and September, it said on Thursday. It had earlier projected one 25-basis point cut in June.

"The softer labor market causes us to add another rate cut, despite higher inflation," Barclays analysts said.

The brokerage expects demand for workers to diminish along with slowing labor market activity this year.

"We think that the relatively sharp slowdown in job gains will be accompanied by only a moderate rise in the unemployment rate, which would peak at 4.3% in October."

This comes after, U.S. consumer prices increased less than expected in February. Data showed on Wednesday the consumer price index rose 0.2% last month after accelerating 0.5% in January, while economists polled by Reuters were expecting the CPI to gain 0.3%.

Analysts at Barclays expect the first rate cut in June to "reflect indications of slower growth and rising unemployment" while the second rate cut in September to indicate "a rising unemployment rate and some signs of improvement in monthly inflation prints."

Following the cut in September this year, Barclays expects the central bank to remain on an extended pause and resume its cutting cycle in March 2026.

Barclays also lowered its Q4/Q4 2025 growth projections to 0.7% from 1.5% expected earlier.

The Fed left its benchmark overnight interest rate in the 4.25-4.50% range in its January policy meeting, with Chair Jerome Powell saying there would be no rush to cut them again until inflation and jobs data made it appropriate. The Federal Open Market Committee (FOMC) is scheduled to meet again on March 18 and 19.

(Reporting by Kanchana Chakravarty in Bengaluru; Editing by Shinjini Ganguli and Anil D'Silva)