The Fed's Next Move: What Lower Yields Mean for Dividend ETFs

"The odds of another rate cut this year aside, there should not be any question of a connection between the FED policy and income investing, and it's all pretty simple, actually. When the FED cuts rates, cash stops paying as well. The prevailing theory, and what history has shown, is that yields on money market funds and short-term Treasurys, which hit over 5% last year, will begin to decline."

"All of this means that the investment world is waiting with bated breath to see what Powell will say next. Chairman Powell made it clear that any decision on the FED's next move will be based on how inflation, employment, and growth data evolve over the next several weeks. Traders lowered the odds of a December rate cut to 67%, down from 90%, according to CME Group's FedWatch, which is something to consider if you are a betting person."

Markets await Federal Reserve interest-rate decisions ahead of 2026 after a late October cut and uncertainty about a December move. Fed decisions will hinge on incoming inflation, employment, and growth data, and traders trimmed the odds of a December cut to 67% from 90% per CME Group's FedWatch. Rate cuts typically push down yields on money market funds and short-term Treasurys that recently exceeded 5%, reducing cash returns. Lower cash yields make dividend-paying stocks and ETFs more attractive for income and stability, with dividends helping dampen volatility and support stock prices.

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