The Federal Reserve triggered an afternoon rally in the stock market on Wednesday after officials looked past inflation fears and kept interest rates unchanged. CNBC’s Jim Cramer said it was exactly the right decision.
The central bank raised its economic growth and inflation expectations, but did not report any upcoming rate hikes. That could mean consumer prices get even higher, Cramer said, but that’s the least of his concerns as long as companies are hiring more workers.
“Don’t mind inflation behind the curtain,” Cramer said on “Mad Money,” after the market closed. “Fed chief Jay Powell pulled a page from the Wizard of Oz playbook today and, unlike in the movie, he was right.”
The Fed kept its reference rate close to zero during the coronavirus pandemic.
Shares traded lower earlier in the day in anticipation of a possible shift from the Fed. Following the announcement, the Dow Jones and S&P 500 indices both closed the trading day in record territory. The blue chip average added 189 points to close at 33,015.37, yielding a gain of 0.58%. The benchmark rose 0.29% to 3,974.12. The tech-heavy Nasdaq Composite had the biggest swing from its intraday lows to close 0.4% at 13,525.20.
Despite an improving outlook, including expected gross domestic product growth of 6.5% in 2021 and an improving employment environment, the Fed has insisted that it does not expect interest rates to rise until 2023.
Last month, the US saw employment for nonfarm payroll improve by 379,000, but the unemployment rate remained little changed at 6.2% and remained high from pre-pandemic levels.
Cramer said investors concerned about inflation are “missing out on some very large stock moves.”
Money managers, who often take their cues from the bond market, and baby boomers scarred by the high inflation rates of decades ago, ended up on the wrong side of the trade, he said.
“If you instead recognize that the Fed is the stock market’s friend, you will understand those moves,” he said. “We all have new investors who don’t pay any attention to the Fed or the bond market at all … pretending to be bandits. You may not like it, but in this market ignorance it is a blessing. ‘