Despite significant progress, inflation continues to stay above the Fed’s 2% target, and it will be likely for the central bank to raise interest rates further and hold them at a restrictive level for some time. Amid the uncertainty around the Fed’s monetary policy, ongoing government dysfunction, and other macroeconomic challenges, the stock market could remain highly volatile.
Amid this backdrop, best-performing bond ETFs iShares 1-3 Year Treasury Bond ETF (SHY – Get Rating) and iShares Treasury Floating Rate Bond ETF (TFLO – Get Rating) could be ideal investments now for instant diversification and steady returns.
Inflation posted its biggest monthly gain of 2023 in August as consumers faced higher prices on energy and various other items. The Consumer Price Index (CPI) grew 0.6% for the month and was up 3.7% year-over-year. Economists surveyed by Dow Jones estimated respective increases of 0.6% and 3.6%.
Meanwhile, stronger-than-expected jobs data has aggravated anxiety that the Fed will decide to keep interest rates higher for longer. As per data from BLS’ monthly Job Openings and Labor Turnover Survey (JOLTS) report, there were an estimated 9.61 million job openings in August, up from July’s 8.92 million. Economists were looking for 8.8 million job openings.
While Fed officials opted to hold the benchmark federal funds rate steady at its meeting in September, most indicated that another rate hike would likely be needed before the year-end.
“I remain willing to support raising the federal funds rate at a future meeting if the incoming data indicates that progress on inflation has stalled or is too slow to bring inflation to 2% in a timely way,” said Fed Governor Michelle Bowman.
Also, Cleaveland Fed leader Loretta Mester said the Fed’s work is likely not done. “I suspect we may well need to raise the fed funds rate once more this year and then hold it there for some time as we accumulate more information on economic developments and assess the effects of the tightening in financial conditions that has already occurred,” Mester added.
Amid the Fed’s likelihood to keep rates higher for longer, government dysfunction, geopolitical instability, and other macro headwinds, the stock market will likely face enhanced volatility in the near term. Amid this, investors could consider taking refuge in bond ETFs. These ETFs provide immediate diversification and a regular stream of income.
In light of these encouraging trends, let’s look…
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