The Federal Reserve caused a midday battle in the stock market on Wednesday after officials looked past fears of inflation and kept rates unchanged. According to CNBC’s Jim Cramer, this was exactly the right call.
The central bank has raised its economic forecasts and inflation forecasts, but indicated the short-term rate hikes. That could mean consumer prices rising even higher, Cramer said, but that’s the least of his concerns, as long as more employees hire employees.
“Watch the inflation behind the curtain,” Cramer said on ‘Mad Money’ after the market closed. “The head of the Fed, Jay Powell, took a page from the Wizard of Oz playbook today and, unlike in the movie, he was dead right.”
The Fed has kept its standard interest rate close to zero for the length of the coronavirus pandemic.
Stocks traded lower earlier in the day in anticipation of a possible Fed move. Following the announcement, the Dow Jones and S&P 500 indices both completed the trading day in a record high. The blue-chip average added 189 points and closed at 33,015.37 for a gain of 0.58%. The benchmark rose 0.29% to 3,974.12. The tech-heavy Nasdaq Composite has the biggest swing from its intraday lows to 0.4% at 13,525.20.
Despite improved prospects, including projected 6.5% gross domestic product growth in 2021 and an improved employment environment, the Fed has maintained that it does not expect to increase lending figures until 2023.
Last month, U.S. non-farm jobs improved by 379,000, but the unemployment rate changed little at 6.2% and was still higher than pre-pandemic levels.
Cramer said investors worried about inflation are missing out on some very large stocks.
Money managers, who often use their indicators of the bond market, and baby boomers who are plagued by the high inflation rates of decades ago, have ended up on the wrong side of the trade, he said.
“If you realize instead that the Fed is the friend of the stock market, you will catch the move,” he said. “We have all these new investors who pay no attention to the Fed or the bond market at all … they act like bandits. You may not like it, but in this ignorance it is blissful.”