Investment guru Jim Cramer said the Federal Reserve “would be crazy” to keep ignoring economic forces already weighing on the U.S. economy before it plans more rate hikes for 2019.
Between signals of slowing inflation and the U.S.-China trade dispute, stocks could benefit from a more "rational" Federal Reserve, Cramer said on CNBC.
"It's important to recognize that the most important inputs ... for future inflation are already going lower, not higher. It'd be crazy to ignore that," he said late Tuesday.
"While I think [Fed Chair Jerome] Powell's been mistaken in his approach, he's not crazy. The man is prudent — there's no reason for him to be rash, especially not with the deflationary impact of the strong dollar helping him," he said.
"We've seen steady deceleration in real estate and construction projects at a host of banks. American Electric Power, ... the biggest utility in the country, talked about a downtick in activity," he said. "We know that housing starts and housing sales are just abysmal. And while Home Depot assured us of stronger sales, it acknowledged that housing is slowing."
Meanwhile, prices of basic economic building blocks including lumber, copper, chemicals and paper are falling, Cramer warned.
"The action, to me, screams 'slowdown,'" he said. "Yes, we still have wage inflation, I know. People are making a little more money. But how long will that last if all of these important commodities are turning down?"
However, the Fed hasn't given any indication it plans to change its plan to hike rates.
The Fed last week left its key policy rate unchanged but signaled that it plans to keep responding to the strong U.S. economy with more interest rate hikes. The next rate hike is expected in December, the Associated Press reported.
The Fed left its benchmark rate in a range of 2 percent to 2.25 percent. A statement it issued Thursday after its latest policy meeting portrayed the economy as robust, with healthy job growth, low unemployment, solid consumer spending and inflation near the Fed's 2 percent target.
Despite a U.S. trade war with key nations, weaker corporate investment and a sluggish housing market, the Fed is showing confidence in the economy's resilience. To help control inflation, it has projected three rate increases in 2019 after an expected fourth hike of the year next month.
Energy companies led a late-afternoon sell-off on Wall Street Tuesday after U.S. crude oil prices had their biggest drop in more than three years. Investors are worried about the possibility of rising oil production out of the U.S. and OPEC, the Associated Press reported.
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