Barclays Chief US Economist on Fed, fiscal, and consumer slowdown (with Guy Johnson, Tom Mackenzie, Anna Edwards)

Core view: A sharp consumer slowdown in H2 will override inflationary pressures from oil ($100 Brent), fiscal expansion, and the AI capex boom. This gives the Fed cover to cut next year, making current market pricing for a hike wrong. The labor market is a red herring; slowing job gains reflect supply constraints (immigration cuts), meaning the unemployment rate will drift *lower*, not higher. This is the key mispricing.

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Barclays 8.4
Investment Bank $1600.00B
Marc Giannoni 9.0

Barclays Chief US Economist on Fed, fiscal, and consumer slowdown (with Guy Johnson, Tom Mackenzie, Anna Edwards)

wti

We think Brent may end the year at around $100, with WTI slightly lower than that and then gradually come down.

5/1/2026 7:16:38 PM	short term cautious down	7 days later	-7.85%	+3.92%
4/16/2026 2:16:36 PM	short term up	5 days later	+10.86%	+10.86%
3/27/2026 1:02:17 AM	medium term up	21 days later	-12.90%	-12.90%
3/4/2026 8:50:44 AM	short term up	5 days later	+3.01%	+3.01%
9/8/2025 5:00:31 PM	short term up	6 days later	+1.07%	+1.07%

Guy Johnson

Asks if incoming Fed Chair Warsh will cut or hike rates.
Marc Giannoni

Warsh won't do much in the near term. Barclays still anticipates the Fed will cut next year, but market pricing has shifted towards expecting a hike.
Guy Johnson

Asks if the Fed will have to follow the market if it continues to price in a hike.
Marc Giannoni

No. The Fed will look at macro factors (inflation, economic activity) and make a decision based on that. They will look through the oil pressure.
Tom Mackenzie

Asks about assumptions on how long the oil pressure and Strait closure continue.
Marc Giannoni

Barclays assumes oil prices will be slightly more elevated through the rest of the year. Brent may end the year around $100, with WTI slightly lower, then gradually come down. With this more extended price shock, there will be some pass-through to core prices.
Tom Mackenzie

Asks about concern over the US deficit and borrowing, and its impact on the long end.
Marc Giannoni

Very much top of mind. The fiscal outlook looked better a few months ago (tariff revenues, no rapid defense spending increase). Now, tariff revenue is lower (some declared illegal) and defense spending is likely higher. Deficits will increase substantially. However, this won't provide a big fiscal stimulus because consumer spending is set to slow significantly in H2.
Anna Edwards

Asks if the AI capex buildout is also driving inflation higher.
Marc Giannoni

Absolutely. AI capex boosted aggregate spending by about 80 basis points last year (out of 2% GDP growth). A similar contribution is expected this year. This raises the stock market and provides wealth effects.
Anna Edwards

Asks if AI becomes deflationary in the time horizon for rate cuts.
Marc Giannoni

No. In the near term, AI investment boosts demand and creates bottlenecks (chip/memory prices). The disinflationary productivity improvement is several years away.
Guy Johnson

Asks how real US nominal growth is, given the epic deficit and AI buildout, and what happens when those effects fade.
Marc Giannoni

Consumers are the key (70% of spending). They have been in great shape but will have to slow spending due to price increases and slowing income. Barclays expects 1% growth in consumer spending in H2 on an annualized basis, leveling off to 1.5%, no longer the 3-4% seen in recent years.
Tom Mackenzie

Asks about confidence in the US jobs market holding up through 2026.
Marc Giannoni

Job gains have slowed to ~50k/month. This is due to lower business demand for workers AND a significant slowdown in labor supply (immigration cuts, retirements). The unemployment rate is stabilizing/drifting down, not up. It will continue to drift down even as job gains slow further.
Anna Edwards

Asks if the AI effect is in the labor numbers yet.
Marc Giannoni

So far, AI is helping on the demand side (buildout). The negative narrative of AI destroying jobs is far down the future and historically hasn't materialized with technological revolutions.

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