Nomura has joined a growing list of brokerages forecasting that the U.S. Federal Reserve will keep interest rates unchanged through 2026, pointing to stubborn inflation and limited support within the central bank for rate cuts.
The brokerage said persistent price pressures and a more hawkish tone from policymakers are reducing the likelihood of monetary easing in the near term, per Reuters, as quoted on Yahoo Finance.
Iran War and Chip Shortage Fuel Inflation Concerns
In a note dated May 21, Nomura revised its earlier outlook that had called for two 25-basis-point rate cuts in September and December.
The firm said inflationary pressures stemming from the Iran war, along with a worsening global memory chip shortage, are increasingly feeding into consumer prices and keeping inflation elevated.
Fed officials have also grown more concerned that the Middle East conflict could intensify inflation risks, with some policymakers becoming more open to additional rate hikes if necessary.
Brokerages Turn More Hawkish
Other major brokerages, including Morgan Stanley and Barclays, have also ruled out Fed rate cuts this year.
They cited rising oil prices tied to geopolitical tensions and strong capital spending linked to artificial intelligence as factors likely to keep economic growth and inflation elevated.
ETFs to Buy Now
Against this backdrop, below we highlight a few exchange-traded funds (ETFs) that could gain ahead.
Avantis U.S. Small Cap Value ETF AVUV
A decently-improving domestic economy bodes well for the pint-sized stocks. Moreover, hawkish tone from the Fed indicates less dovish interest rate policy, going forward. Value stocks perform better in the less dovish policy era.
Invesco S&P Mid-Cap 400 Pure Value ETF RFV
Mid-cap stocks offer the best of both worlds – small and large ones. These have exposure to both domestic and international economies. Note that the U.S. economy expanded at an annualized rate of 2.0% in Q1 2026, up from 0.5% in the previous quarter. With easing trade tensions, and improving cues for the U.S. GDP growth, mid-cap stocks are well-positioned for a rally ahead.
State Street SPDR S&P Bank ETF KBE
Cheaper valuation, steepening of the yield curve, and decent earnings growth make the case stronger for the bank ETF investing.
Pacer US Cash Cows 100 ETF COWZ
“Cash-cow investing” means focusing on companies that generate high free cash flow yields. In a shaky economic condition, such cash-rich companies tend to weather the risks efficiently. Cash-rich companies rely less on borrowing. Hence, they are better-positioned in a tighter credit market.
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State Street SPDR S&P Bank ETF (KBE): ETF Research Reports
Invesco S&P MidCap 400 Pure Value ETF (RFV): ETF Research Reports
Pacer US Cash Cows 100 ETF (COWZ): ETF Research Reports
Avantis U.S. Small Cap Value ETF (AVUV): ETF Research Reports
This article originally published on Zacks Investment Research (zacks.com).