Fed Rate Hike Is Back: 4 ETFs That Could Benefit From Higher Rates, Sticky Inflation
The Federal Reserve has resumed raising interest rates, lifting its benchmark rate by 25 basis points to 3.75%-4% on Wednesday, its first hike since July 2023. More importantly for markets, Fed officials now see another increase this year and expect rates to remain elevated through 2027. The shift comes as inflation remains stubborn and higher oil prices linked to Middle East tensions add another source of price pressure. The Fed raised its 2026 inflation forecast to 3.7% from 3.6% in June, while core inflation is now projected at 3.4%. That backdrop puts several ETF strategies in focus. See More: Top Value Stocks 1. SGOV — Short-Term Treasuries The iShares 0-3 Month Treasury Bond ETF (NYSE: SGOV ) has a 3.63% 30-day SEC yield, with an expense ratio of 0.09%. Its ultra-short Treasury holdings give it minimal interest-rate sensitivity, while yields can adjust relatively quickly as bills mature and are reinvested. 2. USFR — Floating-Rate Treasuries The WisdomTree Floating Rate Treasury Fund (NYSE: USFR ) has a 3.68% 30-day SEC yield and charges 0.15%. Its Treasury floating-rate notes reset their coupons with short-term rates, making the ETF particularly relevant if the Fed delivers a
75%-4% on Wednesday, its first hike since July 2023. More importantly for markets, Fed officials now see another increase this year and expect rates to remain elevated through 2027. The shift comes as inflation remains stubborn and higher oil prices linked to Middle East tensions add another source of price pressure. 4%.
That backdrop puts several ETF strategies in focus. See More: Top Value Stocks 1. 09%. Its ultra-short Treasury holdings give it minimal interest-rate sensitivity, while yields can adjust relatively quickly as bills mature and are reinvested.
2. 15%. Its Treasury floating-rate notes reset their coupons with short-term rates, making the ETF particularly relevant if the Fed delivers another hike. 3.
TIP — Inflation Protection The iShares TIPS Bond ETF (NYSE: TIP ) provides exposure to inflation-protected Treasuries. 32-year effective duration. Unlike conventional Treasuries, TIPS adjust their principal with changes in inflation, making TIP a potential hedge if energy prices keep feeding into broader inflation. 4.
VTV — Value Stocks Higher rates can challenge richly valued growth stocks by increasing the discount rate applied to future earnings. Vanguard Value ETF (NYSE: VTV ) could offer relative protection if higher rates weigh more heavily on richly valued growth stocks. Its exposure to established, profitable companies, along with financials and energy, also gives it exposure to parts of the market that can be less vulnerable to rising discount rates. 03%.
The common thread is not that these ETFs are immune to a hawkish Fed. Rather, they offer different forms of exposure to the environment the central bank is now confronting: higher short-term yields, persistent inflation and an oil-driven supply shock. Read Also: Bond Yields Are Surging Around the World — But China Is Bucking the Trend: ‘The Economy Is in Its Own World’ Photo: Shutterstock