Don’t look now, but markets are once again getting excited about the prospect potential rate cuts .Following months defined by rising rates, investors are looking forward to inflation cooling sufficiently for the Fed to finally cut.
Such cuts would, of course, boost the economy significantly and have broad implications for the investment landscape. Areas that had previously turned off investors and markets, then, could instead appeal. Active ETFs are a solid option to ably navigate that landscape.
Inflation has already cooled significantly, while also cooling the Fed’s desire to raise rates more. Indeed, we’ve already seen the central bank pause on further hikes this month and last.
Interest rate futures last week pointed to as much as a 60% chance that the Fed would lower rates as soon as May. At that meeting, per CME Group data, the central bank could cut by about 25 basis points. Indeed, it may even see as many as four total cuts.
Bond markets have reflected that outlook already, suggesting that there is a case to be made for rate cuts next year. Firms from UBS to Vanguard foresee cuts next year as well, despite hesitation from Fed Chair Jerome Powell.
Making an allocation to active ETFs could be one solid route to play potential rate cuts. Active strategies lean on seasoned managers who know their investment areas intimately. An active ETF can find the firms poised to benefit the most from rate cuts. From strict equities to bond segments, international equities to real estate, active strategies can cut the wheat from the chaff, so to speak. Should rate cuts truly be on the horizon, assessing the active investing landscape now may make sense.
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