Jan 12 (Reuters) - J.P. Morgan predicts the U.S. Federal Reserve's next move will be a rate hike in 2027, while Barclays and Goldman Sachs joined Morgan Stanley in postponing rate cut calls to mid-2026 as data suggested that the labor market was not rapidly deteriorating.
J.P. Morgan withdrew its outlook for a January cut, forecasting Fed's next move to be a 25-basis-point rate hike in the third quarter of 2027. Macquarie reiterated its forecast of a rate hike in the December 2026 quarter.
Data on Friday showed U.S. employment growth slowed more than expected in December. However, a decline in the unemployment rate to 4.4% and solid wage growth suggested the labor market was not rapidly deteriorating, boosting expectations that the central bank will leave borrowing costs unchanged at its January meeting.
"If the labor market weakens again in the coming months, or if inflation falls materially, the Fed could still ease later this year," J.P. Morgan said in a note dated Friday.
"However, we expect the labor market to tighten by the second quarter and the disinflation process to be quite gradual."
Traders are betting on a 95% chance for the Fed to keep rates unchanged at its January meeting, according to the CME FedWatch tool, up from 86% before the data.
Goldman Sachs and Barclays, which had forecast cuts in March and June, now expect a 25 bps reduction in September and December, respectively, following the cut in June.
"If the labor market stabilizes as we expect, the FOMC will likely shift from risk management mode to normalization mode," Goldman said in a note dated Sunday, as it lowered its 12-month U.S. recession probability to 20% from 30%.
Morgan Stanley also revised its forecast on Friday to rate cuts in June and September from January and April.
Wells Fargo and BofA Global Research both maintained their bets of March-June and June-July cuts, respectively.
"Mix of data is consistent with our view that breakeven job growth might be falling (labor supply shock) even faster than the Fed will concede," BofA added.
Meanwhile, the tussle between President Donald Trump and Fed Chair Jerome Powell intensified, after Powell on Sunday said the Trump administration had threatened him with a criminal indictment, stoking worries about the central bank's independence.
Powell called this move a "pretext" to gain more influence over interest rates that Trump wants cut dramatically.
Reporting by Siddarth S and Akriti Shah in Bengaluru; Editing by Janane Venkatraman
