Barclays and BNP Paribas now anticipate the Federal Reserve will implement a 25 basis point rate reduction in September, citing a notable shift in Fed Chair Jerome Powell's rhetoric regarding labor market risks during the Jackson Hole symposium.

Barclays has moved up its Fed rate cut timeline from the previously expected September 2026 to September 2025, noting that Powell's remarks signaled an "accommodative bias" while raising the threshold for maintaining current rates. The economics team led by Jonathan Millar stated: "We now expect two 25 basis point cuts this year, occurring in September and December."

BNP Paribas has also reversed its longstanding forecast of unchanged Fed rates, now projecting rate cuts in both September and December. The bank's economics team, headed by Calvin Tse, wrote in their analysis: "Powell clearly indicated the Fed's intention to implement a modest rate cut in September, unless incoming data suggests otherwise."

Powell's Jackson Hole address highlighted a transformation in the Fed's response framework, with increased focus on labor market vulnerabilities. Powell noted: "This unusual situation indicates that downside employment risks are mounting." He cautioned that such risks could rapidly manifest through layoffs and surging unemployment rates.

Deutsche Bank similarly projected 25 basis point cuts in September and December 2025 in a report released last Friday.

According to the Chicago Mercantile Exchange's FedWatch tool, markets currently assign an 87% probability to a 25 basis point rate cut at September's policy meeting, up from 75% before Powell's speech. The Federal Open Market Committee (FOMC), responsible for setting interest rates, is scheduled to convene again on September 16-17.