Barclays: Fed Rate Cuts Could Reduce U.S. Recession Risk
Barclays said on Friday that the Federal Reserve’s new rate-cutting cycle should help the U.S. economy avoid a recession, noting that lower interest rates are likely to take “some U.S. recession risk off the table.”
In its latest client note, the bank highlighted that the Fed began easing policy last month with a 25-basis-point “risk management” cut. While acknowledging that uncertainty remains due to questions about central bank independence and the ongoing U.S. government shutdown, Barclays maintained that rate cuts should continue at a “measured pace.”
The report emphasized that although U.S. job growth has slowed, the main cause appears to be supply-side constraints, not weakening demand. “We expect lower rates to help the U.S. economy avoid a downturn,” Barclays wrote, adding that current conditions do not signal an “imminent collapse.”
Barclays also pointed out that while housing starts and sales have softened, both home prices and construction employment remain resilient. Other key economic indicators continue to show stable or expansionary trends, supporting the case for a soft landing rather than a recession.
Looking at historical trends, Barclays noted that non-recessionary rate-cut cycles tend to produce stronger economic growth and more consistent market outperformance. The bank reiterated its “Positive view on Growth over Value”, supported by data showing that growth-oriented sectors typically benefit the most during periods of monetary easing.
Barclays’ Sector Outlook: Tech and Financials in Focus
Sector-wise, Barclays said that defensive sectors such as Healthcare and Consumer Staples tend to outperform in mild recessionary overlaps. However, in past soft landing cycles — such as those in the mid-1990s — the biggest winners were cyclical and growth sectors, including Technology, Financials, Communication Services, and Consumer Discretionary.
Taking these dynamics into account, Barclays reaffirmed a Positive Outlook on Tech and Financials, citing strong earnings momentum, reasonable valuations, and their historically robust performance during non-recessionary rate-cut environments.
