The Federal Reserve is expected to slash interest rates at the end of its two-day meeting on Wednesday. The annual inflation rate in the United States advanced to 3% in September 2025, though the highest since January and higher than 2.9% in August, it came below forecasts of 3.1%, per tradingeconomics.
The lower-than-expected inflation data may help the Fed to cut rates in the coming months. The Fed has already enacted its first rate cut of 2025 in September and hinted at two more cuts this year. There is a 97.8% chance (at the time of writing) of a 25-bp rate cut in October, per the CME FedWatch Tool. A softer labor market is expected to lead the Fed to consider this path.
Against this backdrop, below we highlight a few investing areas that could gain in the near term.
ETF Areas in Focus
Short-Term Bonds – iShares Short Treasury Bond ETF SHV
As the Fed is likely to cut short-term rates in October, short-term bond prices are likely to rise. Moreover, the short-term U.S. Treasury ETF SHV yields as much as 4.29% annually. This higher-yielding nature of SHV makes it a good play for investors right now.
Dividends – Vanguard High Dividend Yield ETF VYM
High dividend ETFs can be a good investment during times of economic uncertainty, as they provide a steady source of income regardless of market conditions. These types of stocks and ETFs typically pay out a higher percentage of their profits as dividends than other stocks, implying that they can make up for capital losses, if there are any.
With the Fed likely to cut rates, bond yields will fall, which makes dividend-paying stocks a good source of higher current income. The Zacks Rank #1 (Strong Buy) ETF VYM charges 2.48% annually. It charges 6 bps in fees.
Homebuilding – iShares U.S. Home Construction ETF ITB
The likelihood of an October Fed rate cut and more such Fed moves down the line may drag down mortgage rates. According to LendingTree’s chief credit analyst Schulz, such moves may “spur more Americans to consider jumping back into the housing market after sitting on the sidelines for so long,” as quoted in CNBC. The ITB ETF yields 0.55% annually and charges 38 bps in fees.
Growth Stocks – SPDR Portfolio S&P 500 Growth ETF SPYG
Growth stocks outperform in a low-rate environment because cheaper borrowing helps expansion and future earnings of the companies. Lower rates also boost the present value of long-term cash flows, making growth names more attractive.
Auto – First Trust S-Network Future Vehicles & Technology ETF CARZ
Potential car buyers could gain from lower rates. The average rate on a five-year new car loan is currently around 7%. While “a modest Fed rate cut won’t dramatically slash monthly payments for consumers,” Jessica Caldwell, head of insights at Edmunds, previously told CNBC, “it does boost overall buyer sentiment,” as quoted in the above-mentioned CNBC article.
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iShares U.S. Home Construction ETF (ITB): ETF Research Reports First Trust S-Network Future Vehicles & Technology ETF (CARZ): ETF Research Reports iShares Short Treasury Bond ETF (SHV): ETF Research Reports Vanguard High Dividend Yield ETF (VYM): ETF Research Reports SPDR Portfolio S&P 500 Growth ETF (SPYG): ETF Research ReportsThis article originally published on Zacks Investment Research (zacks.com).
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