Fhe Fed raised interest rates by 25 basis points on Jul 26 after taking a brief pause in June. The hike was widely expected as the Fed believes that inflation is still elevated and has remained open for more hikes depending on economic data in the near term.

Inflation has been cooling steadily over the past 12 months, raising hope among market participants that the Fed will soon end its current monetary tightening cycle. The Consumer Price Index (CPI) declined to 3% in June after rising 4% in May. Understandably, CPI has fallen considerably after peaking to 9.1% in June 2022.

According to the latest data from the Commerce Department, Personal Consumption Expenditures (PCE) inflation and the core PCE inflation rose by 2.6% and 3.8%, respectively, in the second quarter. The figures hint at cooling inflation compared to an increase of 4.1% for PCE and 4.9% for core PCE in the first quarter.

The headline PCE inflation also increased just 3% in June on a year-over-year basis, to hit its lowest level since March 2021. Moreover, U.S. GDP grew an impressive 2.4% in the second quarter, following a rise of 2% in the first quarter.

The picture is rosy but the Fed remains concerned as inflation is far from its target range of 2%. The Fed has increased interest rates by 525 basis points since March 2022 to take the federal funds rate to 5.25-5.50%, marking the highest level since March 2001.

Although central bank officials are confident that the economy may now have a softer landing as inflation continues to ease, it believes that more interest rate hikes are required to get full control over the economy’s health.

Moreover, the Fed believes that the economy is still holding strong as the labor market remains resilient. Job creation has slowed but the U.S. economy added 290,000 jobs in June, while the unemployment rate is still quite low at 3.6%.

Hence, the crisis is far from over and the Fed may go for more interest rate hikes. Interest rate hikes can be detrimental to the economy amid the looming risk of a recession. They impact consumer spending habits, increase borrowing expenses, and impede overall economic growth.

Moreover, given this situation, the first interest rate cut is not expected before 2025, although some market participants speculate it might occur in 2024.

Investors should thus focus on stocks that offer risk-adjusted returns like Kimberly-Clark Corporation KMB, McCormick & Company, Incorporated MKC, J&J Snack Foods Corp. JJSF and TreeHouse Foods, Inc. THS.

These stocks belong to the consumer staples sector that are non-cyclical in nature, meaning their businesses are not heavily influenced by market fluctuations.

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Kimberly-Clark Corporation is principally engaged in the manufacture and marketing of a wide range of consumer products around the world. KMB sells its products to supermarkets; mass merchandisers; drugstores; warehouse clubs; variety and department stores; retail outlets; manufacturing, lodging, office building, food service, and health care establishments; and high-volume public facilities.

Kimberly-Clark Corporation has an expected earnings growth rate of 14.2% for the current year. The Zacks Consensus Estimate for current-year earnings has improved 3.2% over the last 60 days. KMB presently has a Zacks Rank #2 (Buy).

McCormick & Company, Incorporated is a leading manufacturer, marketer and distributor of spices, seasonings, specialty foods and flavors to the entire food industry across the entire globe. MKC’s key sales, distribution and production facilities are located in North America and Europe.

McCormick & Company’s expected earnings growth rate for the current year is 5.1%. The Zacks Consensus Estimate for the current-year earnings has improved 1.9% over the past 60 days. MKC currently has a Zacks Rank #2.

J&J Snack Foods Corp. is an American manufacturer, marketer and distributor of branded niche snack foods and frozen beverages for the food service and retail supermarket industries. Manufactured and distributed nationwide, JJSF’s principal products include SUPERPRETZEL, BAVARIAN BAKERY and other soft pretzels, ICEE and SLUSH PUPPIE frozen beverages, LUIGI’S, MINUTE MAID frozen juice bars and ices, WHOLE FRUIT sorbet and frozen fruit bars.

J&J Snack Foods’ expected earnings growth rate for the current year is 41.3%. The Zacks Consensus Estimate for current-year earnings has improved 1.3% over the past 60 days. JJSF currently carries a Zacks Rank #2.

TreeHouse Foods, Inc. is a manufacturer of packaged foods and beverages with more than 50 manufacturing facilities across the United States, Canada and Italy servicing retail grocery, food away from home, and industrial and export customers. THS manufactures a variety of shelf-stable, refrigerated and fresh products.

TreeHouse Foods’expected earnings growth rate for the current year is more than 100%. The Zacks Consensus Estimate for current-year earnings has improved 2.8% over the past 60 days. THS currently sports a Zacks Rank #1.

Kimberly-Clark Corporation (KMB): Free Stock Analysis Report

McCormick & Company, Incorporated (MKC): Free Stock Analysis Report

TreeHouse Foods, Inc. (THS): Free Stock Analysis Report

J & J Snack Foods Corp. (JJSF): Free Stock Analysis Report

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