Fed hikes rates 25 basis points to 3.75%-4%
The Federal Reserve raised its benchmark rate by 25 basis points to 3.75%-4% and signaled another increase could come before the end of 2026. It also lifted its median 2026 PCE inflation forecast to 3.7% from 3.6% in June.
75%-4% on Wednesday, its first rate hike in three years. 6% in June. JoAnne Bianco, senior investment strategist at BondBloxx Investment Management, sees an opportunity in short-to-intermediate duration credit as the Federal Reserve’s renewed focus on inflation keeps interest-rate volatility elevated. "The signals were all there, but now we know for certain that this Fed is going to act on its warnings about persistent inflation and the risks it poses to long-term economic health," Bianco said.
The backdrop could make the trade-off between bond income and interest-rate risk increasingly important for ETF investors. See More: Top Momentum Stocks Short-Duration ETFs Offer Different Risk-Return Trade-offs "Volatility in the rate environment is clearly not going away, so we believe investors should focus on income generation in fixed income over long duration exposures," Bianco said. " That strategy can be illustrated across three types of bond ETFs. 63% 30-day SEC yield as of Sept.
10 years. The fund holds Treasury bills, giving investors minimal exposure to interest-rate movements while keeping income closely linked to short-term rates. The Vanguard Short-Term Treasury ETF (NASDAQ: VGSH ) moves further out the curve. 9-year average duration as of Sept.
9. Investors get a higher current yield than SGOV but also take on more sensitivity to changes in rates. 7-year average duration as of Sept. 8.
Its higher yield comes with corporate credit risk and greater duration exposure than SGOV or VGSH. Income Versus Duration The distinction is important. SGOV prioritises minimal duration risk, VGSH adds modest duration while retaining Treasury exposure, and VCSH adds corporate credit risk in pursuit of higher income. For investors concerned that further Fed hikes could push longer-duration bond prices lower, shorter-maturity securities also offer another advantage.
Bonds mature sooner, allowing proceeds to be reinvested at prevailing yields rather than leaving investors locked into lower rates for years. With inflation still elevated and the Fed signalling that its rate-hiking cycle may not be over, Bianco’s view puts the focus on where investors can capture income without taking on excessive duration risk. Read Also: Fed Rate Hike Is Back: 4 ETFs That Could Benefit From Higher Rates, Sticky Inflation Photo: Shutterstock