The Fed’s persistent hawkish tilt to control still-elevated inflation and the recent banking crisis could push the economy into a recession. Amid this, it could be wise to invest in top small-cap value ETFs Vanguard Small-Cap Value ETF (VBR), ProShares Russell 2000 Dividend Growers ETF (SMDV), and VictoryShares US Small Cap High Dividend Volatility Wtd ETF (CSB) for portfolio diversification and potential gains.
Since March 2022, the Federal Reserve has increased the benchmark federal funds rate to a 4.75%-5% range, the highest level since September 2007. The Fed’s hawkish stance is now yielding results, with inflation dropping for the ninth consecutive month in March. Consumer prices rose 0.1% for the month and 5% year-over-year, below respective estimates of 0.2% and 5%.
Although inflation has fallen significantly from the 40-year highs reached last year, it remains well above the Fed’s target of 2%. Still-elevated inflation instills fears among investors about the Fed’s next course of action. The CME FedWatch tool shows markets are pricing approximately 80% chance of a quarter-percentage-point interest rate hike in May.
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