The Federal Reserve triggered an afternoon rally on the stock market on Wednesday after officials analyzed fears of inflation and kept rates unchanged. CNBC’s Jim Cramer said it was exactly the right call.
The central bank raised its forecasts for economic growth and inflation, but failed to show upcoming rate hikes. That may mean consumer prices are even higher, Cramer said, but that’s the least worrying as companies hire more employees.
“Don’t pay attention to the inflation behind the curtain,” Cramer told Mad Money after closing the market. “Today, Fed chief Jay Powell has taken a page from the Wizard of Oz game book and, unlike the film, he was absolutely right.”
The Fed has kept its benchmark interest rate close to zero for the duration of the coronavirus pandemic.
Shares had traded lower during the day pending a potential change from the Fed. Following the announcement, 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 with a gain of 0.58%. The benchmark rose 29.9% to 3,974.12. The Nasdaq Composite, which has been very technological, experienced the biggest movement of its intraday lows to close 0.4%, at 13,525.20.
Despite the improved outlook, including projected gross domestic product growth of 6.5% in 2021 and an improving working environment, the Fed maintained that it does not expect to increase debt rates until 2023.
Last month, the United States saw non-farm payroll employment improve by 379,000, but the unemployment rate changed little, at 6.2%, and remained high relative to pre-pandemic levels.
Cramer said investors worried about inflation “are losing some very big stocks.”
Money managers, who often take their directions from the bond market, and baby boomers marked by high inflation rates from decades ago, ended up on the wrong side of the trade, he said.
“If, on the other hand, you recognize that the Fed is the stock market’s friend, you’ll catch those moves,” he said. “We have all these new investors not paying attention to the Fed or the bond market … they’re becoming bandits. You may not like it, but in this ignorance of the market it’s a blessing.”