Cramer: The Potential Impact of a Fed Pause on the Stock Market is Groundbreaking
Cramer says a much-needed Fed pause could ignite a stock market rally like we haven’t seen in decades.
Until a few weeks ago, the U.S. economy was doing relatively well despite inflation and quick Federal Reserve interest rate increases. However, the sudden collapse of two banks that lent against stocks and cryptocurrency exposed uncertainty in the banking system. This article will explore how a pause in Fed rate hikes could ignite a much-needed stock market rally.
The Banking Crisis
The collapse of Silicon Valley Bank and Signature Bank, which both lent against stocks that weren’t public and cryptocurrency, exposed uncertainty in the banking system. Bank runs happened so quickly that they couldn’t be stopped, and the withdrawals happened over mobile and other devices. The cause of the collapse was the rapid Fed rate hikes that left banks that bought too many longer-duration bonds heavily underwater. The bank examiners were blindsided, and there’s currently no actual safety net for accounts more significant than the Federal Deposit Insurance Corporation (FDIC) threshold of $250,000.
A History of Ignorance
Our history is riddled with moments where we thought things were going well, and the Fed was hiking only to discover that some outfits were struggling. For example, the financial crisis precipitated the 2007 to 2009 Great Recession. Everybody in power either seemed oblivious or relied on some Lord John Russell laissez-faire system that almost brought the house down—until then, these moments used to cause the Fed to pause and assess the damage already caused without realizing it.
A Much-Needed Pause
Fortunately, the Fed is not tone-deaf, and a pause in rate hikes could ignite a much-needed stock market rally. These pauses have allowed the Fed to reassess its position in the past, and investors have responded positively. Moreover, with inflation relatively stable and the economy still performing well, a pause could give the banking system time to stabilize and investors to regain confidence in the market.
- The Fed hiked interest rates nine times since starting last March from near zero to the current 4.75% to 5% range on the fed Fund overnight bank-to-bank lending rate.
- The collapse of Silicon Valley Bank and Signature Bank exposed uncertainty in the banking system.
- The financial crisis precipitated the 2007 to 2009 Great Recession, where everybody in power seemed oblivious or relied on some Lord John Russell laissez-faire system.
A pause in Fed rate hikes could ignite a much-needed stock market rally, giving the banking system time to stabilize and investors time to regain confidence in the market.
The sudden collapse of two small banks has exposed a level of uncertainty in the banking system, and a pause in Fed rate hikes could be just what the market needs to regain confidence. History has shown that these pauses have allowed the Fed to reassess its position and investors to respond positively. With inflation relatively stable and the economy still performing well, now is the time for the Fed to hit the pause button.