A rate hike could become increasingly likely if inflation remains elevated, according to Federal Reserve officials and the minutes of the central bank’s latest policy meeting. Three members of the committee voted for a rate increase last month, although the Fed ultimately chose to keep rates unchanged and monitor economic conditions.

Higher interest rates typically raise borrowing costs across consumer debt, potentially reducing consumers’ purchasing power. With Wall Street already experiencing volatility over the past two months, another rate hike could prolong market uncertainty.

In light of the current uncertainty, it would be wise to consider investing in defensive, low-risk funds such as healthcare. Three such funds are Fidelity Select Health Care (FSPHX Quick QuoteFSPHX - Free Report) , Janus Henderson Global Life Sciences D (JNGLX Quick QuoteJNGLX - Free Report) and Vanguard Health Care Fund (VGHCX Quick QuoteVGHCX - Free Report) .

Fed Signals Potential for Rate Hike

The Federal Reserve maintained its benchmark interest rate at the July Federal Open Market Committee (FOMC) meeting, leaving it in the 3.5-3.75% range. While the decision was widely expected, Fed officials have indicated that rates could be raised if inflation remains persistently high.

Inflation rose significantly in April and May after oil prices surged amid the U.S.-Iran conflict. This prompted some market participants to expect a rate increase in July. However, the central bank kept rates steady after inflation moderated in June and July.

Even with the recent decline, inflation remains well above the Fed’s 2% target. Minutes from the meeting showed that policymakers voted 9-3 to maintain the federal funds rate. The three dissenting members supported a 25-basis-point hike, arguing that a modest hike could help contain inflation now and reduce the need for more aggressive increases later.

The overnight borrowing rate serves as a benchmark for several forms of consumer debt, including mortgages, credit cards and auto loans.

At the same time, geopolitical tensions have intensified again, with neither the United States nor Iran appearing ready to resume negotiations. Earlier this week, the United States said there were no immediate plans for peace talks and that none were currently scheduled.

Oil prices have risen again as concerns grow that the Middle East conflict could persist. A sustained increase in crude prices could put renewed upward pressure on inflation, potentially increasing the likelihood of another Federal Reserve rate hike.

3 Healthcare Funds to Buy

We have selected three healthcare funds that are safe bets during this time of market volatility. Moreover, these funds have encouraging three and five-year returns. The minimum initial investment is within $5000.

We expect these funds to outperform their peers in the future. Remember, the goal of the Zacks Mutual Fund Rank is to guide investors in identifying potential winners and losers. Unlike most of the fund-rating systems, the Zacks Mutual Fund Rank is not just focused on past performance but also on the likely future success of the fund.

The question here is: why should investors consider mutual funds? Reduced transaction costs and diversification of portfolio without several commission charges that are associated with stock purchases are primarily why one should be parking money in mutual funds (read more: Mutual Funds: Advantages, Disadvantages, and How They Make Investors Money).

Fidelity Select Health Care fund seeks capital appreciation. FSPHX normally invests 80% of its assets in common stocks of companies principally engaged in the design, manufacture, or sale of products or services used for or in connection with healthcare or medicine.

FSPHX’s 3-year and 5-year annualized returns are 9.4% and 3.8%, respectively. Fidelity Select Health Care fund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.62%.

To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

Janus Henderson Global Life Sciences D fund primarily invests in equity securities issued by companies engaged in life sciences orientation.

JNGLX’s 3-year and 5-year annualized returns are 12.9% and 8.4%, respectively. Janus Henderson Global Life Sciences D fund has a Zacks Mutual Fund Rank #1 and an annual expense ratio of 0.79%.

To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

Vanguard Health Care Fund invests the majority of its net assets in the common stocks of foreign and domestic companies. These companies are engaged in the development, production, or distribution of products and services related to pharmaceutical and medical supply companies, as well as businesses that operate hospitals and other healthcare facilities.

VGHCX’s 3-year and 5-year annualized returns are 6.7% and 5.1%, respectively. Vanguard Health Care Fund has a Zacks Mutual Fund Rank #2 and an annual expense ratio of 0.33%.

To see how this fund performed compared to its category, and other 1 and 2 Ranked Mutual Funds, please click here.

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