Fed put back on table if tariff drag accelerates: Barclays

Investing.com -- Barclays said resilient second-quarter earnings have supported equity markets despite macroeconomic uncertainty, but early signs that tariffs are weighing on U.S. growth could prompt the Federal Reserve to act sooner.

“[The] majority of the Q2 earnings is done and results have generally managed to clear a low bar,” Barclays wrote, noting that “US numbers have been stronger aided by Big Tech,” pushing U.S. equities to new highs last week.

The bank pointed to Nvidia’s August 27 results as the next catalyst for the artificial intelligence trade.

While “corporates have been largely adept at managing the impact from tariffs so far,” Barclays warned that it “doesn’t mean tariff uncertainty has gone away completely given Trump policy making remains erratic” and the full economic impact is yet to be felt.

With payroll revisions pointing to a cooling labor market and softer ISM data, Barclays said there is “early evidence US growth is slowing,” triggering “a sharp repricing lower in Fed rate expectations.”

The bank notes that a week ago, markets were pricing in 1.3 cuts by year-end, up to 2.4 now and with the probability of a September cut standing at 95%.

However, Barclays is “not convinced a September cut is a given,” citing a low unemployment rate and expectations for goods inflation to rise.

The bank called next week’s U.S. consumer price index report “a key catalyst,” as a hawkish reading could “reinforce the current narrow leadership in quality/growth,” while a softer print would likely “cement rate cuts expectations” and lift equities.

Barclays also flagged Fed Chair Jerome Powell’s Aug. 21-23 Jackson Hole speech as a potential market mover, given “tensions at the Fed and Trump’s criticism.”

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