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ETFs to Play the Fed Rate Hike Buzz

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As widely expected, the Fed held interest rates steady at a near-zero level in its latest meeting. U.S. interest rates have been this low since March 2020. However, the forecast revealed that 13 members of the Federal Open Market Committee believe the Fed will hike rates in 2023 and the majority expect at least two hikes that year, per a CNBC article.

Seven of the 18 members see the Fed increasing rates as early as 2022. The Fed also hiked its inflation forecast for this year. The central bank now expects inflation to jump to 3.4% this year, higher than its previous forecast of 2.4%. PCE inflation expectation has gone up to 2.1% for 2022 from 2% projected in March and to 2.2% for 2022 (from 2.1%). This has flared up talks of a faster-than-expected rate hike.

Such rate hike talks have weighed on stocks in recent sessions. Although bond yields initially jumped after the Fed meeting, yields dropped in the two days that followed. Against this backdrop, we would like to highlight that if a rate hike actually happens and bond yields surge considerably, a few ETF areas would benefit.

These are value ETFs like SPDR Portfolio S&P 500 Value ETF (SPYV - Free Report) , Convertible Bonds ETFs like SPDR Bloomberg Barclays Convertible Securities ETF (CWB - Free Report) , Corporate Bond ETFs like PIMCO Investment Grade Corporate Bond Index ETF (CORP - Free Report) , floating rate bond ETFs like iShares Floating Rate Bond ETF (FLOT - Free Report) , small-cap ETFs like iShares Russell 2000 ETF (IWM - Free Report) and financial ETFs like SPDR S&P Bank ETF (KBE - Free Report) .

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