The Federal Reserve unleashed an afternoon stock market rebound on Wednesday, after officials let go of inflation fears and kept rates unchanged. CNBC’s Jim Cramer said it was exactly the right decision.
The central bank raised its projections for economic growth and inflation, but failed to signal increases in future interest rates. That may mean that consumer prices rise even more, said Cramer, but that is the least of his worries, as long as companies are hiring more employees.
“Don’t pay attention to inflation behind the curtain,” said Cramer in “Mad Money” after the market closed. “Fed chief Jay Powell took a page from the Wizard of Oz manual today and, unlike the film, he was absolutely right.”
The Fed kept its benchmark interest rate close to zero during the coronavirus pandemic.
The shares traded lower earlier in the day, in anticipation of a possible change in the Fed. After the announcement, the Dow Jones and S&P 500 indices closed the session in record territory. The average of the blue-chip totaled 189 points to close at 33,015.37 with a gain of 0.58%. The benchmark advanced 0.29% to 3,974.12. The high-tech Nasdaq Composite had the biggest fluctuation of its intraday lows to close above 0.4% at 13,525.20.
Despite an improvement outlook, including a projected 6.5% growth in gross domestic product in 2021 and an improving employment environment, the Fed maintained that it does not expect to increase lending rates until 2023.
Last month, the US saw non-farm payroll employment improve by 379,000, but the unemployment rate barely changed by 6.2% and remained high from pre-pandemic levels.
Cramer said investors worried about inflation are “missing out on some very large stock movements”.
Money managers, who are often inspired by the bond market, and baby boomers marked by high inflation rates of decades ago, ended up on the wrong side of trade, he said.
“If, instead, you recognize that the Fed is the friend of the stock market, you will notice these movements,” he said. “We have all these new investors who pay no attention to the Fed or the bond market … they are doing like bandits. You may not like it, but in this ignorance of the market it is a blessing.”