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Barclays: Fed unlikely to hike before March 2016

The Federal Reserve's first rate hike will likely occur in March of next year amid financial volatility and uncertainty surrounding growth in emerging markets, according to Barclays.

The recent move lower in oil, which is down about 17 percent on the month, will likely weigh on the Federal Open Market Committee as some members had "expressed concern over U.S. inflation before the most recent drop in oil prices and further dollar strength attenuates somewhat how quickly core inflation is likely to firm," Barclays said in a note on Monday.

The outlook is a major shift from the firm's previous expectation of a September rate increase.

"Although we continue to see economic activity in the U.S. as solid and justifying modest rate hikes, we believe the Federal Reserve is unlikely to begin a hiking cycle in this environment for fear that such a move may further destabilize markets," Barclays said in a note.

However, the investment bank said should current "market volatility prove transitory," the FOMC could raise rates in December.

Markets are increasingly pricing in the unlikelihood of the Fed boosting interest rates in next month.

Earlier on Monday, overnight indexed swap rates implied traders now see a 50 percent chance that the central bank will raise U.S.rates in December, down from 72 percent on Friday, according to Reuters.

Separately, only 37 percent of economists expect the central bank raise the federal-funds rate in September, while 17 percent sees the Fed keeping policy on hold until 2016 or later, according to a National Association for Business Economics survey.

The survey, released on Monday, was taken between July 27 and August 4, about two weeks before the sharp U.S. stock selloff took hold.

The Fed has held its benchmark interest rate near zero since 2008 in an effort to stimulate the economy.