Government data released lately showed that inflation rose last month. President Trump’s tariffs may be trickling down to consumer prices.
Rising Inflation
The U.S. annual inflation rate accelerated to 2.9% in August 2025, the highest since January, after staying the same at 2.7% in both June and July, in line with market expectations, as quoted on tradingeconomics.
On a monthly basis, the CPI rose 0.4%, the highest since January, above forecasts of 0.3%, per the above-mentioned trasingeconomics article. The increase was fueled by persistent gasoline prices and stronger food inflation. Energy cost rose for the first time in seven months, per tradingeconomics.
Core inflation held steady at 3.1%, unchanged from July and in line with February’s high. On a monthly basis, core CPI increased 0.3%, in line with July’s growth and market expectations, as mentioned in the above-said tradingeconomics article.
Implications for Fed Policy
Along with hotter CPI data, there was a recent rise in jobless claims. Economist Seema Shah, chief global strategist at Principal Asset Management, noted that a recent rise in jobless claims could put more pressure on the Federal Reserve to cut rates (as quoted on Yahoo Finance). However, the contradictory data points may not lead the Fed to go for an aggressive rate cut in the coming days.
Any Sliver Lining?
“Jobless claims have risen, but they remain well below 2021 levels,” Shah said in the above-mentioned Yahoo Finance article. Shah also went on to explain that broader economic data and corporate earnings are decent at the current level.
The U.S. economy grew at an annualized rate of 3.3% in Q2 of 2025, marking a rebound from the 0.5% contraction in Q1, according to the second estimates. The figure was revised slightly higher from the first estimate of 3%, per tradingeconomics.
On the corporate earnings front, for Q3 of 2025, total S&P 500 index earnings are expected to be up 5.1% from the same period last year on 5.9% higher revenues. Unlike other recent periods, the revisions trend has been positive, with estimates for Q3 modestly up since the quarter got underway, per the Earnings Trends issued on Sept. 10, 2025.
What Will Fed Do Now?
At the time of writing, there are 92.5% chances of a 25-bp rate cut in the September meeting, while chances of a 50-bp rate cut is 7.5%, per CME FedWatch Tool. Notably, the odds of a 25-bp cut have increased since Sept. 10, 2025, as markets are no longer expecting a large cut due to a hot inflation print.
ETFs to Play Now
Against this backdrop, below we highlight a few large-cap blend exchange-traded funds (ETFs) which have exposure to both growth and value stocks. Strong probability of a moderate rate cuts makes blend stocks and ETFs decent picks right now.
First Trust Dow 30 Equal Weight ETF EDOW– Zacks Rank #2 (Buy)
iShares Core S&P Total U.S. Stock Market ETF ITOT – Zacks Rank #2
iShares Core S&P 500 ETF IVV – Zacks Rank #1 (strong Buy)
iShares S&P 100 ETF OEF – Zacks Rank #2
Invesco S&P 500 Quality ETF SPHQ – Zacks Rank #2
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Invesco S&P 500 Quality ETF (SPHQ): ETF Research Reports iShares Core S&P 500 ETF (IVV): ETF Research Reports iShares Core S&P Total U.S. Stock Market ETF (ITOT): ETF Research Reports iShares S&P 100 ETF (OEF): ETF Research Reports First Trust Dow 30 Equal Weight ETF (EDOW): ETF Research ReportsThis article originally published on Zacks Investment Research (zacks.com).
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