Barclays says Fed may hold rates steady through 2026 amid oil shock

A year without Fed rate cuts would keep mortgages, credit cards, auto loans and corporate borrowing costs pinned at uncomfortable levels, forcing households and businesses to finance more of their spending at today’s higher rates. Barclays now says that is the most likely outcome for 2026, reversing its earlier call for a quarter-point cut in September and pushing the next expected move to March 2027.

The brokerage’s shift reflects a harsher inflation backdrop tied to the Iran war and the jump in global energy prices. With oil shocks feeding into shipping, fuel and broader price expectations, Barclays has joined a growing group of forecasters that now see the Federal Reserve staying on hold through the rest of 2026. Traders have moved in the same direction, with markets pricing a roughly 78.7% chance of no change in rates by year-end. A Reuters poll of 103 economists also showed how quickly expectations have soured, with 56 seeing the benchmark rate still in the 3.50% to 3.75% range through the end of September.

The Federal Reserve itself signaled why it is in no hurry to ease. On April 29, the Federal Open Market Committee held rates steady in a 7-4 vote, the most divided decision since 1992. In its statement, the Fed said inflation remained elevated partly because of recent increases in global energy prices. Chair Jerome Powell said total PCE inflation rose 3.5% in the 12 months ending in March 2026, while core PCE inflation rose 3.2%. The message was clear: price pressure is still too firm for comfort, even as economic activity has expanded at a solid pace and job gains have remained low on average.

For borrowers, that means relief is slipping further away. Mortgage rates are likely to stay elevated, credit card balances will continue to compound at high costs, and car buyers will face little help from the central bank. Companies planning refinancings, new bond sales or leveraged deals will also have to assume a more expensive funding environment, which can squeeze margins and delay hiring or investment. The longer the Fed waits, the more that higher financing costs filter into spending decisions across the economy.

Minneapolis Federal Reserve President Neel Kashkari added to the sense of uncertainty by warning on May 1 that the Iran war could force “potentially a series” of rate hikes if inflation worsens. He later said the longer the conflict lasts, the greater the risks of higher inflation and economic damage. With Powell’s chairmanship due to end on May 15, the next move will depend on whether energy prices cool, inflation eases further, and labor data weaken enough to give policymakers room to cut. Until then, Barclays is betting the Fed stays put.