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Three Rate Cuts Expected in 2025? ETFs in Focus

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Federal Reserve Governor Michelle Bowman recently indicated that she is considering three interest rate cuts this year, due to concerns about the health of the job market and the overall U.S. economy. She cautioned that delaying rate reductions could “result in a deterioration in labor market conditions and a further slowing in economic growth.”

Bowman revealed that she voted against the Fed’s decision to keep interest rates unchanged last month. Instead, she was in favor of a 0.25% cut in the benchmark rate.

Inflation and Tariffs: One-Time Impact

Bowman indicated that price increases stemming from tariffs are likely to have a one-time effect. This is because a monetary policy takes time to have an impact on the economy. Bowman said it is okay to tolerate a short-term spike in inflation readings and ease the policy rate to prevent labor market weakness.

The Fed governor also expressed skepticism about the accuracy of monthly jobs data, pointing to declining survey response rates and shifts in immigration and business creation patterns.

More Comments Favoring Rate Cuts

San Francisco Fed President Mary Daly also recently said that the Federal Reserve may need to cut interest rates in the coming months due to a weakening labor market, despite near-term inflation pressures from tariffs.

While Daly indicated that tariffs will push inflation higher in the short term, she doesn’t expect the effect to be lasting. Daly noted that underlying inflation, excluding tariffs, has been gradually falling and should continue to do so with the ongoing restrictive monetary policy and a slowing economy.

Meanwhile, New York Fed President John Williams said the job market remains “solid” but admitted that the downward revisions in hiring are concerning, as quoted on Yahoo Finance.

Time for Growth Stocks?

Growth stocks perform better in a low-rate environment. Low rates reduce the cost of borrowing, often needed to finance the expansion of companies. Lower rates reduce the attractiveness of fixed-income investments like bonds, leading investors to seek higher returns in the equity markets. Growth stocks, with their potential for high returns, become more appealing to investors in this environment, driving up demand and, consequently, their prices.

ETFs to Buy

Against this backdrop, below we highlight a few top-ranked, growth-based, exchange-traded funds (ETFs) that can be tapped if the Fed starts cutting rates soon.

Vanguard Growth ETF (VUG - Free Report) – Zacks Rank #1 (Strong Buy)

Invesco S&P 500 Pure Growth ETF (RPG - Free Report) – Zacks Rank #2 (Buy)

Invesco Large Cap Growth ETF (PWB - Free Report) – Zacks Rank #1

Vanguard S&P 500 Growth ETF (VOOG - Free Report) – Zacks Rank #1

iShares S&P 500 Growth ETF (IVW - Free Report) – Zacks Rank #1

 


 

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