Barclays economist Jonathan Miller told clients on Monday that the most recent U.S. economic releases have sharpened the bank's view of the outlook, yet higher oil prices now represent the largest threat to the inflation trajectory.
In his note, Miller said the latest estimates "helped resolve many tensions in our outlook," noting that February's jobs report "effectively reversing January's upside surprises" even as consumer purchases continue to show resilience amid a slowing growth backdrop.
Monetary policy stance and oil risk
The bank continues to anticipate "two 25bp cuts, in June and December," while cautioning that the oil market remains the key wildcard. Barclays emphasised that "The Iran situation remains fluid," and that associated risks are "mostly centered upon oil market developments."
Miller quantified the sensitivity of headline inflation to energy moves, writing that "A persistent 10% increase in oil prices boosts headline inflation by 0.2pp in one to two months." In response to recent energy price moves, Barclays has raised its forecast for December 2026 consumer price inflation by 0.4 percentage points to 2.7% year over year, and said the risks are skewed to the upside if the conflict continues.
Labour market readings
Barclays described the weakness in February's payroll data as overstated by temporary reversals. Nonfarm payrolls fell by 92,000 and the unemployment rate increased to 4.4%. The bank argued these figures "largely reflect a reversal of idiosyncrasies that had boosted the January report," and highlighted the effect of a strike that sidelined 31,000 healthcare workers.
Even so, Barclays said underlying trends point to average monthly job gains of about 50,000 and to a labour market where modest hiring still reduces the unemployment rate.
Consumer spending and retail trends
Incoming spending indicators point to continued stability. The retail control group - a commonly used gauge of core retail activity - rose 0.3 percent in February, and vehicle sales rebounded. Barclays said these outcomes are "consistent with the gradual deceleration of consumer spending" that the bank has incorporated into its outlook.
Bottom line
Barclays views recent data as clarifying several tensions between growth, spending and employment dynamics, and retains a path for two quarter-point rate reductions later this year. However, the bank makes clear that oil market developments, particularly those linked to the Iran situation, could push inflation higher and alter expected policy outcomes.