Powell must ‘slay these seven dragons’ for market to recover

CNBC’s Jim Cramer on Wednesday went through a list of economic problems that Federal Reserve Chair Jay Powell needs to address to tamp down inflation and in turn help the stock market rebound.

“Right now, Powell’s losing on too many fronts, which means he has to get more aggressive about raising interest rates to cool things down. … Powell does have a daunting task, though,” the “Mad Money” host said.

There “is a huge schedule of things. … I’ve only listed the most obvious seven. If Powell can slay these seven dragons, then making money in the stock market will come easy again. Until then, though, expect more horrific days like today. No gain without pain, and this time there’s a lot of it,” he later added.

Here is the list:

1. Housing: “I think mortgage rates must go to 7% or 8% before it’s just too expensive and new homes start coming down in price. … Powell has a lot of wood to chop to get rates that high, but he must do so,” Cramer said.
2. Autos: “Powell has to choke demand for cars and the best way to do that is to raise interest rates. … We need a glut of cars to solve this intractable problem. Then the semiconductor makers can catch their breaths,” Cramer said.
3. Labor: “The more companies that decide they can’t afford to hire people here, the less we need to worry about a wage-price spiral,” he said.
4. Russia’s invasion of Ukraine: Cramer said that while Powell does not have control over its outcome or duration, the war is causing commodities prices, including oil and grains, to skyrocket.
5. High freight costs: Either a slowdown in commerce or an increase in the number of drivers will help on this front, Cramer said.
6. Airfares: Plane tickets need to get so expensive that people travel less and in turn spend less, he said.
7. Consumer savings glut: People need to spend their pandemic savings so that they are motivated to go back to work, according to the host.

The Dow Jones Industrial Average slid 3.57% on Wednesday while the S&P 500 dropped 4.04%, both marking their biggest losses since June 2020. The Dow closed at its lowest level since March of last year. The Nasdaq Composite tumbled 4.73%. 

Cramer noted that declines in the stock market suggest consumers will spend less, while a glut of inventory at retail giants point to price markdowns. These factors could help slow down the economy, but Powell still has an arduous road ahead to bring down inflation, he said.

“Remember, consumers saving money will help break inflation, while more spending just accelerates it. … Less consumer spending makes Jay Powell’s job a lot easier,” Cramer said.