Barclays expects Fed to push back rate cuts on inflation worries

March 13 (Reuters) - Barclays (BCS) on Friday joined Goldman Sachs in delaying its forecast for the U.S. Federal Reserve's first interest rate cut this year to September from June, citing heightened risks to inflation from the conflict in the Middle East.

Barclays (BCS) said hotter-than-expected underlying U.S. inflation and the prospect of oil-driven price pressures meant the Fed was unlikely to gain confidence that inflation was easing quickly enough to begin cutting rates in mid-2026.

Barclays (BCS) also pushed its projected December cut to March 2027 and now expects only one 25-basis-point rate reduction this year.

"Our change reflects an upward revision to our PCE inflation outlook, as well as increased upside risks to inflation resulting from the conflict with Iran," strategists at Barclays (BCS) wrote.

A Commerce Department report on Friday showed the economy slowed more than first estimated in the fourth quarter after downward revisions to consumer spending and business investment, while separate data indicated consumer spending rose slightly more than expected in January.

Goldman Sachs pushed back its rate-cut forecast on Thursday, citing rising inflation risks linked to the Middle East war.

Barclays (BCS) said policymakers would need several months of moderate core inflation to be confident the disinflation trend is intact.

It added that risks around its baseline remain "two-sided," noting that more persistent inflation could push cuts further out, while a sharp rise in unemployment could accelerate easing.

Traders now expect one Fed rate cut by June 2027, compared with earlier expectations for two cuts by the end of this year, according to LSEG data.

The Fed is expected to keep interest rates unchanged when policymakers meet on March 17-18.

(Reporting by Rashika Singh in Bengaluru; Editing by Anil D'Silva and Maju Samuel)