ETF Strategies to Follow as Powell Hints at September Rate Cuts

Wall Street rallied sharply on Aug. 22, 2025, as Federal Reserve Chair Jerome Powell suggested that interest rates could be lowered as soon as in September in his Jackson Hole address.  In his remarks, Powell agreed that the economic outlook has shifted in ways that may warrant a change in monetary policy.

However, he cautioned that inflation pressures remain a concern. He pointed to tariff-related costs, noting that such pressures are starting to show an impact on the economy and continue to pose an upside risk to inflation.

The rate cut hopes gave a boost to the market. Powell’s comments triggered a sharp repricing in the bond and futures markets. President Trump has continued to push the central bank toward lowering interest rates

Traders turning skeptical about a September rate cut quickly raised their expectations, with the probability rising to 91.5% by Friday afternoon compared with 70% earlier in the day and 85% a week ago. In response, treasury yields fell and stocks jumped.

The Dow Jones Industrial Average jumped 1.9% to close at a fresh record high, while the S&P 500 rose 1.5% and the Nasdaq Composite gained 1.9%. The strong finish came at the end of a tough week for Wall Street, particularly for technology shares, which had been weighed down by doubts about the sustainability of the AI trade.

ETF Strategies to Follow

Against this backdrop, below we highlight a few winning exchange-traded fund (ETF) strategies that could boost your portfolio in September, if other macroeconomic factors remain the same.

Tap Bond ETFs

Bond yields are directly proportional to interest rates. Hence, if there is a rate cut, bond prices would go up as bond prices and yields are inversely related. Examples of some U.S. treasury ETFs are iShares U.S. Treasury Bond ETF GOVT, iShares 20+ Year Treasury Bond ETF TLT, iShares 10-20 Year Treasury Bond ETF TLH, iShares 7-10 Year Treasury Bond ETF IEF and Schwab Short-Term U.S. Treasury ETF SCHO.

Tap High-Dividend ETFs

High-dividend ETFs are always a good source of regular current income. These ETFs may offer you benchmark-beating yields. Investors may thus be interested in equities that have the potential to offer capital appreciation as well as benchmark-beating yields. After all, dividends are one of the ways to ride out the turbulent times.

ETFs like Global X SuperDividend ETF SDIV, SPDR Portfolio S&P 500 High Dividend ETF SPYD and Vanguard High Dividend Yield ETF VYM are some of the ETFs that offer high dividend yields. The fund SDIV yields 9.87% annually. SPYD yields 4.36% annually, while VYM yields 2.57% annually.

Growth ETFs to Log a Relief Rally?

Growth investing focuses on capital appreciation rather than annual income or dividends. Growth stocks typically have high future earnings potential, meaning much of their value is based on expectations of future cash flows.

When interest rates are low, the discount rate used to value these future cash flows decreases, making the present value of those future earnings higher. This boosts the stock price. Plus, cheaper borrowing costs help growth companies to fund their ambitious projects.

Note that most growth ETFs are skewed toward tech stocks that are closely tied to the AI boom. The SPDR Portfolio S&P 500 Growth ETF SPYG is an example of a growth ETF, which suffered last week (due to AI-fatigue-led selloffs) only to record 1.6% gains on Aug. 22, 2025, reacting to Powell’s comments. Investors can now play funds like SPYG.

Crypto Joins the Powell Rally

The Fed Chair’s speech also sparked momentum in cryptocurrencies, as bitcoin rallied and Ethereum led the digital asset gains. As investors rushed to embrace the prospect of a looser monetary policy, cryptos rallied as part of risk-on trade sentiments. iShares Bitcoin Trust ETF IBIT surged 4% on Friday.

Tap Rate-Sensitive Sector ETFs

Sectors like real estate and utilities are rate-sensitive in nature. These sectors fare better in a low-rate environment. With the Fed likely to cut rates in September, the real estate sector should outperform. Vanguard Real Estate ETF VNQ yields 3.84% annually and charges 13 bps in fees. Meanwhile, the Utility sector tends to be stable and provides consistent dividends. Utilities Select Sector SPDR ETF XLU yields 2.66% annually.

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This article originally published on Zacks Investment Research (zacks.com).

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