Inflation won’t ease anytime soon if Tuesday’s rally lasts

CNBC’s Jim Cramer said that Tuesday’s market gains need to come down in order for the Federal Reserve to beat inflation as soon as possible.

“Right now, the best outcome would be for the averages to come down quickly, so [Fed Chair Jay Powell] can get it over with,” he said.

“Powell had better hope this run won’t last, or else those beach house prices, new construction jobs, Lennar homes, processed food stocks and oil prices won’t be going down and staying down anytime soon,” he added, referring to the homebuilder’s warning in its latest earnings call that buyers have pushed back against current housing prices with sales slowing in some markets.

Stocks rose on Tuesday after the market was closed on Monday due to the Juneteenth holiday. While the rally was a welcome reprieve for investors after last week’s declines, many fear the comeback will be short-lived as recession fears loom over Wall Street.

Cramer said that while he’s normally in favor of higher stock prices, the Fed needs the market to decline for inflation to also come down. The reason, he said, is that a downturned market will curb spending and keep people in the labor market.

“In recent years, bountiful gains in the stock market have allowed the winners to spend like crazy,” he said. 

“If Powell can get this market to go down and stay down, repealing much of those gains, then the rich are less likely to spend aggressively and a lot of people are more likely to remain in the workforce when they might otherwise have retired,” he added.