CNBC’s Jim Cramer said on Thursday that it is a mistake to dispose of the shares in reaction to the Federal Reserve’s decision to leave the interest rate unchanged.
He defended Fed Chairman Jerome Powell, who the day before kept the central bank’s goal of keeping short-term lending rates low to support the US economic recovery, even if inflation rises in the short term.
“Higher rates are bad for the economy. Powell does not want us to suffer this blow if it is not necessary,” said the host of “Mad Money”. “He doesn’t want his legacy to hinder recovery … [not after he] acted so aggressively last year to prevent the economy from crashing.
The Fed cut rates last year in response to the coronavirus pandemic. Now many market watchers are trying to anticipate the Fed’s next move as the economy gains strength.
Mandates instituted to slow the spread of Covid-19 toppled the economy and tossed the country’s unemployment rate into the double-digit range. The unemployment rate has since dropped to 6.2% in February, and Powell said the Fed would prioritize giving the job market room to recover.
“I think Jay Powell is sure to focus more on full employment than low inflation … I bet he is right about the transitory nature of commodity price increases,” said Cramer.
“Wall Street went crazy last year when Powell cut rates aggressively, and they’re freaking out again now that they’ve decided to keep them down,” he added.
While a low interest rate environment is good for equities, not all equities are created equal, said Cramer.
Industrial businesses are winners when rates are low, while growing names – especially those in technology that trade based on expectations of future profits – are being hit because later profits are not so attractive if inflation erodes their value, he said. he.
The Fed now projects a 6.5% improvement in gross domestic product this year, compared to 4.2% of the projection made in December. As the U.S. economy reopens and more consumers venture out of the home, cyclical businesses, like travel, are likely to benefit greatly, Cramer said.
“The Fed is basically saying, ‘Come on, industrialists’, which makes hedge funds buy them hand in hand,” said the host.
“The problem is that if they want to buy the banks or the stock in the chimney … they need to sell something else,” he said, as “the high-growth technology stocks that they always discard, and this is called a manual hedge fund “.