Jim Cramer of CNBC thinks the Federal Reserve will struggle to contain inflation without a downturn in the housing and car sectors. Cramer said that historically, when the Fed increases interest rates, the housing, automotive, and retail sectors have suffered. But that hasn’t been the case throughout this economic cycle since supply chain problems have continued. Cramer contends that the car and housing sectors must be destroyed if the Fed is to succeed in stopping inflation.
Despite Lithia Motors, AutoNation, and even Carvana seeing price increases as a result of CarMax’s shares exceeding expectations for its fourth-quarter profits, Cramer said that the Fed has failed to encourage the suffering required to slow the economy. Without large layoffs from more sectors, he said, the cycle will continue, with marginal institutions surviving in part because to the robust stock market.
According to Cramer, for the Fed to successfully combat inflation, some marginal enterprises must fail. There is a potential of a significant slowdown whenever enough businesses fail.
Investors are keenly monitoring the Fed’s moves as a result of recent concerns about inflation. While some contend that the Fed must keep increasing interest rates to fight inflation, others, like Cramer, think the Fed must move more aggressively to achieve meaningful effects.
Although it is unclear what actions the Fed will take next, it is certain that a large portion of the financial community is carefully monitoring and anticipating it.