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As Fed Continues Inflation Fight, Invest Strategically Within Equities

·3 min read

This article was originally published on ETFTrends.com.

In the last speech before the Federal Reserve enters its two-week quiet period before the next rate-setting meeting on September 20-21, Federal Reserve Chair Powell reiterated once more that the fight against inflation remains a top priority, as well as a desire to bring the labor market into an alignment that won’t add inflationary pressures, reported CNBC.

“History cautions strongly against prematurely loosening policy,” Powell said in an interview at Cato Institute on Thursday. “I can assure you that my colleagues and I are strongly committed to this project and we will keep at it until the job is done.”

Federal fund rates are currently between 2.25%-2.5% and markets are placing high odds (86%) that the next interest rate increase at the September meeting will be by another 0.75%. There are a variety of reasons that Powell wants to aggressively drive down inflation, but the comments made today by the Fed Chair cited concerns about high inflation becoming a state-of-being for the public, which can in turn work to keep inflation elevated.

“The Fed has the responsibility for price stability, by which we mean 2% inflation over time,” Powell explained. “The longer inflation remains well above target, the greater the risk the public does begin to see higher inflation as the norm, and that has the capacity to raise the costs of getting inflation down.”

Part of that central bank equation will be to curb the labor market, which remains robust despite rising rates and signals that the economy has already begun to slow. Hiring remains strong and wages continue to make gains, issues that Fed tightening would eventually curtail, but could come at the cost of “some pain” to the economy, Powell said.

“What we hope to achieve is a period of growth below trend which will cause the labor market to get back into better balance and that will bring wages back down to levels that are more consistent with 2% inflation over time,” explained Powell.

Investing in Dividends and Value With KVLE

In a challenging year for equities, advisors, and investors have turned to companies generating dividends as well as focusing more on value and moving away from growth.

The KFA Value Line Dynamic Core Equity Index ETF (KVLE) captures both strategies within a single fund by investing in higher-yield companies while diversifying in a way that a “theme” portfolio does not. The fund is a core equity portfolio of securities that are tilted to favor dividend yield, and it seeks to increase yield while avoiding investing solely in high-yield sectors and stocks. It's an approach that has yielded better performance than the S&P 500 in 2022.

KVLE is benchmarked to the 3D/L Value Line Dynamic Core Equity Index and utilizes optimization technology to emphasize securities with solid dividend yields that have the highest rankings in both Value Line Safety and Timeliness. The fund uses a smart beta strategy in seeking more cost-efficient alpha as well as a risk-management strategy that seeks to limit the effects of major market declines while also being positioned to capture positive returns.

KVLE carries an expense ratio of 0.55%.

For more news, information, and strategy, visit the China Insights Channel.

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