Whether the Federal Reserve will continue to lower interest rates this year is the question everyone is asking. President Trump is clearly in favor of more rate cuts, but the rate-setting Federal Open Market Committee (FOMC) still has to make the call.
Fed Chair Jerome Powell, with whom Trump has been at odds, will see his term end in May, giving Trump the power to install a new Fed chair. Still, the decision is up to the FOMC, which appears to be growing increasingly divided with each passing Fed meeting.
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The FOMC will likely vote based on the state of the economy. If the labor market continues to deteriorate and inflation shows signs of peaking or declining, the Fed is likely to continue lowering interest rates. However, if inflation remains significantly above the Fed's 2% preferred target or increases, it'll be more difficult for the Fed to cut rates.
As of this writing, traders were betting on two more rate cuts in 2026. If this happens and Trump gets what he wants, here are two stocks poised to benefit.
Certain sectors are clear beneficiaries of lower rates
One sector that will clearly benefit from lower interest rates is the mortgage industry. Lower rates may not drop mortgage rates overnight, but they will certainly aid a housing market that has been crippled by inflated home prices and high borrowing costs, making the cost of a home unaffordable for most.
One mortgage stock to buy is Compass (COMP +14.04%), the largest residential real estate brokerage in the U.S. Compass is currently in the process of completing a big acquisition of Anywhere Real Estate, the owner of major brokerages such as Coldwell Banker, Century 21, and Corcoran.
NYSE: COMP
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The acquisition takes out a key competitor, provides significant scale in a competitive and fragmented industry, and Compass is also planning to offer more back-end capabilities for brokers, making it a more attractive place to work.
Banks are another sector that could benefit from more interest rate cuts. Lower rates tend to stimulate the economy and increase lending activity, as well as trading and investment banking. Bank of America (BAC 2.80%) is one bank that's likely to benefit from lower interest rates. The company has a large U.S. lending franchise, as well as a significant investment banking business.
Bank of America also still has a significant amount of longer-dated, low-yielding bonds that are currently underwater. While these bonds are not affecting the bank's book value because they're not marked to market, they're a drag on earnings. Lower interest rates could, in theory, bring down the losses or significantly lower them, which could potentially allow Bank of America to reclassify the bonds.
