Powell should ‘slay these seven dragons’ for market to get well

CNBC’s Jim Cramer on Wednesday went by a listing of financial issues that Federal Reserve Chair Jay Powell wants to deal with to tamp down inflation and in flip assist the inventory market rebound.

“Proper now, Powell’s shedding on too many fronts, which implies he has to get extra aggressive about elevating rates of interest to chill issues down. … Powell does have a frightening activity, although,” the “Mad Cash” host mentioned.

There “is a large schedule of issues. … I’ve solely listed the obvious seven. If Powell can slay these seven dragons, then earning profits within the inventory market will come simple once more. Till then, although, count on extra horrific days like right this moment. No acquire with out ache, and this time there’s a whole lot of it,” he later added.

Right here is the record:

1. Housing: “I feel mortgage charges should go to 7% or 8% earlier than it is simply too costly and new properties begin coming down in worth. … Powell has a whole lot of wooden to cut to get charges that top, however he should accomplish that,” Cramer mentioned.
2. Autos: “Powell has to choke demand for automobiles and one of the simplest ways to do this is to boost rates of interest. … We’d like a glut of automobiles to resolve this intractable drawback. Then the semiconductor makers can catch their breaths,” Cramer mentioned.
3. Labor: “The extra firms that resolve they cannot afford to rent individuals right here, the much less we have to fear a few wage-price spiral,” he mentioned.
4. Russia’s invasion of Ukraine: Cramer mentioned that whereas Powell doesn’t have management over its consequence or period, the warfare is inflicting commodities costs, together with oil and grains, to skyrocket.
5. Excessive freight prices: Both a slowdown in commerce or a rise within the variety of drivers will assistance on this entrance, Cramer mentioned.
6. Airfares: Aircraft tickets must get so costly that individuals journey much less and in flip spend much less, he mentioned.
7. Shopper financial savings glut: Individuals must spend their pandemic financial savings in order that they’re motivated to return to work, in line with the host.

The Dow Jones Industrial Common slid 3.57% on Wednesday whereas the S&P 500 dropped 4.04%, each marking their largest losses since June 2020. The Dow closed at its lowest degree since March of final yr. The Nasdaq Composite tumbled 4.73%. 

Cramer famous that declines within the inventory market counsel shoppers will spend much less, whereas a glut of stock at retail giants level to cost markdowns. These components might assist decelerate the financial system, however Powell nonetheless has an arduous highway forward to carry down inflation, he mentioned.

“Bear in mind, shoppers saving cash will assist break inflation, whereas extra spending simply accelerates it. … Much less shopper spending makes Jay Powell’s job lots simpler,” Cramer mentioned.