The Federal Reserve on Wednesday launched an afternoon rally on the stock market, after officials looked at inflation fears and kept rates unchanged. Jim Cramer of CNBC said it was exactly the right call.
The central bank raised its forecasts for growth and inflation, but stopped signaling future rate hikes. This may mean that consumer prices are rising even more, Cramer said, but this is the least of his worries, as long as the business employs more employees.
“Don’t pay any attention to the inflation behind the curtain,” Cramer told Crazy Money after the market closed. “The head of the Fed, Jay Powell, took a page from the Wizard of Oz manual today and, unlike the movie, he was wrong.”
The Fed has kept its reference interest rate close to zero during the coronavirus pandemic.
Shares traded lower earlier in the day, awaiting a possible change from the Fed. Following the announcement, both the Dow Jones and S&P 500 indices ended the trading day in record territory. The blue-chip average added 189 points to close at 33,015.37 for a gain of 0.58%. The benchmark advanced .29% to 3,974.12. Nasdaq Composite, technologically strong, recorded the largest oscillation from its daily lows to almost 4.4% at 13,525.20.
Despite the improved outlook, including an estimated 6.5% increase in gross domestic product in 2021 and an improved employment environment, the Fed said it does not expect loan rates to rise until 2023.
Last month, the US saw non-farm employment improve by 379,000, but the unemployment rate was slightly changed at 6.2% and remained high compared to pre-pandemic levels.
Cramer said investors worried about inflation “are losing some very big stock moves.”
Money managers, who often take their cues from the bond market, and baby boomers scarred by high inflation rates decades ago, have ended up on the wrong side of the trade, he said.
“If, on the other hand, you recognize that the Fed is a friend of the stock market, you will catch those moves,” he said. “We have all these new investors who don’t pay any attention to the Fed or the bond market … they stand out like bandits. You may not like it, but in this ignorance of the market it’s a blessing.”