Fed can’t stop raising interest rates due to these 4 factors

CNBC’s Jim Cramer on Monday listed four reasons why the Federal Reserve can’t stop tightening the economy just yet.

1. Not enough people are reentering the workforce. That makes it more difficult for the Fed to stamp out wage inflation.
2. There’s a mismatch between job openings and job seekers. While many engineers are needed to carry out the measures in the bipartisan infrastructure bill and Inflation Reduction Act, “we’re tapped out of engineers,” he said.
3. There are too many people working in customer relations management, data analysis and advertising. The abundance of these workers means the enterprise software industry is “bloated” and more layoffs are likely coming.
4. Too many new companies were created in the past two years. This has pushed wages higher, and it’ll take time for all the capital to destruct as they struggle to stay in business, he said.

“This market’s hostage to the Federal Reserve, and the Fed’s not going to stop tightening until they see more evidence of real economic pain. Unfortunately, we’re not there yet,” he said.

The major indexes gained overall last week after Fed Chair Jerome Powell indicated the central bank could ease its pace of increases in December, though a strong labor report on Friday disrupted stocks’ ascent. Stocks fell Monday on investor fears that policymakers could steer the economy into a recession. 

Cramer attributed the market’s volatility to how difficult it is to predict how the central bank will continue its fight against inflation.

“Gaming out the Fed’s next move is more of an art than a science,” he said, adding, “You’ve got to figure out when people will start coming back to the workforce and when money-losing companies will let their workers go or simply go bankrupt.”