Cramer explains why the market collapsed after the Fed cut interest rates

Cramer explains why the market collapsed after the Fed cut interest rates

A television station broadcasts the Federal Reserve’s interest rate cut on the floor of the New York Stock Exchange (NYSE) in New York, USA, on Wednesday, December 18, 2024.

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CNBC’s Jim Cramer walked investors through the market’s decline on Wednesday after the Federal Reserve cut its benchmark interest rate by a quarter of a percentage point, suggesting there will likely be fewer cuts than expected next year.

“After listening to Fed Chairman Jay Powell this afternoon, I think a lot of people were even more confused,” he said. “Because he appears to have been caught having to fulfill a forecast about the need for a rate cut and that need was no longer self-evident. The data did not confirm this.”

Cramer questioned Powell’s assertion that the decision was close, saying that seeking progress on inflation while cutting interest rates was a contradiction in terms. Powell’s mixed messages were a big reason for Wall Street’s disappointment with the announcement, Cramer said. He went on to say that a major problem complicating the Fed’s job is that there are currently two economies, one that is on fire and the other that is stalling, that fit together in strange ways.

Cramer looked at the contract manufacturer Jabil as an example. The company makes electronic auto parts, medical devices, tech hardware, robotics and more. The company’s shares rose more than 7% after the company reported a solid quarter and raised its full-year forecast. Much of this strong earnings report was due to Jabil’s data center cooling technology, which is a hot commodity as the U.S. needs more energy than it has, Cramer said. On the other hand, another part of Jabil, focused on industries such as renewable energy and electric vehicles, is ice cold, he added. Cramer said the company could be viewed as a microcosm of our economy, with different components in completely different waters of the economy.

Weak industries like housing and automobiles are facing rising inflation in food, insurance, health care and rents, requiring different responses from the Fed, Cramer said. He added that there are some issues that the Fed may be underestimating, including the rampant speculation in the markets and the historic rally Bitcoin. For Cramer, he sees the problems surrounding the Fed’s announcement as a pattern. While some investors will say the Fed is fanning the flames of inflation with this rate cut, others will say the fire will go out without fanning the embers, he said.

“Ultimately, I really wish the Fed hadn’t been so outspoken about the need to cut rates in the future, albeit more slowly,” he said. “We would have been much better off if they had explicitly taken a wait-and-see approach before this meeting. This time they telegraphed the wrong thing – hence today’s collapse.”

Jim Cramer discusses the Fed's 25 basis point rate cut and the market's reaction

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