Jim Cramer: Why the Fed Is Wrong and the People in Power Are Ill-Advised

If you wanted to do more to make things right with this economy than whatever the Fed is about to do, then we need more people in the workforce.

What's the yield curve saying? What's the stock market saying? What's the 10-year saying? What's the Fed saying?

They are all saying the same thing: Because we can't get enough laborers in this country now that our immigration supply has been cut back sharply, and because we can't create them out of whole cloth, our Fed has no choice but to stop wage inflation the only way it can -- slowing down economic activity by decreasing loan demand, stifling growth and throwing people out of work so there is more talent that's looking for a job than we have right now.

This isn't really all that hard to understand. Jobs are plentiful. People aren't.

But you know what's missing?

The notion that, somehow, the higher short-term rates are going to do what the Fed wants -- get more people laid off or have more people come into the workforce to make it so wages don't go up much.

So then why have I been calling for one more rate hike? Because if we get a strong employment number tomorrow, the Fed will still be perceived as tough on inflation, which does exist in the system; and if we get a weak one, then it can say, "We are going to put through one more to be sure and then wait."

Either way, though, after this rate hike, the Fed will have the luxury of opening its eyes to how much further along it is toward equilibrium than it thought two months ago.

How do we know this?

1. OPEC is having a desperate-gambit meeting right now, an attempt to keep oil from cascading into the $40s. But the worldwide economy may be too weak to sustain that. The strongest area of the country, the southeast and southwest -- because of the oil boom -- could simply topple. That's what the stocks are saying. Topple.
2. Every oil-related product that has been causing material inflation is about to swing the other way.
3. The tariffs will most likely go into effect on all Chinese goods after what we saw last night in Canada with the arrest of Huawei's CFO at U.S. behest. So $500 billion in goods are about to cost a heck of a lot more -- and it is happening too fast to adjust the supply chain for all but the most menial and low-end of products.
4. The electricity use in all but the Permian is declining in major portions of the country.
5. Housing is beginning to have what could be a severe downturn, owing to an increase in inventory, mortgage rates that have just jumped by 25% and high prices for houses. Those prices will break -- and with it will go the consumer confidence for the 65% of households that own homes.
6. Autos are going to cost more because of financing, so we will soon have layoffs at more than just GM (GM) .

The Fed is banking on all of those declines to go more slowly. It doesn't want a collapse in oil or home prices or car prices.

But it will not be satisfied until it sees that wage growth is nil.

That's the real target.

I think the Fed believes that the price increases that so many companies have had to put through because of supply chain issues aren't going to be rolled back. I think it believes that there's much more pent up demand for more projects and homes and apartments and businesses that still hasn't been unleashed. I also think that Jay Powell knows that we have an unsustainable budget deficit.

Now if we were really just worried about an inverted yield curve, then the Fed could dump all of its longer-dated bonds, Treasury Secretary Steve Mnuchin could finance our debt with longer-term bonds that are cheaper than shorter-term bonds -- Tim Geithner never had that option -- and we would have inflection.

All of those thing should occur. Why aren't they?

Because the people in power are ill-advised.

They just won't do the right thing -- and I think they won't because they are not being pressured by anyone to do so, except me, and who the heck am I?

But here's the deal: If you wanted to do more to make things right with this economy than any of the blunt instrument nonsense the Fed is about to do, then the Fed should set up the "Federal Prison Release Truck Driving School" and teach non-violent parolees how to drive trucks. Freight is the biggest single component of the non-wage increase in this country. That's because of a shortage of drivers. If you got 100,000 new drivers in the next 18 months, pricing would come down noticeably.

I am not kidding.

Look, I am giving us a real non-wolf-cry: We have full employment. I will agree with that. The two ways to make it NOT produce wage inflation are:

1. Raise rates to where it costs too much to borrow, and instead people just do nothing with their money but sit on it; and

2. Get the people who are not in the workforce into the workforce through job training, especially some of the 600,000 people released from state and local prisons each year.

Get ready for the former. It's the only way the Fed knows how to do its job -- and it sure isn't like anyone else in Washington seems to care, except the President, who business people from both the left and the right, even those who share his views, no longer seem to trust.

In fact, those who share his views are the ones who are most baffled and befuddled right now, including some of the people who are on the Fed and who thought they knew the president and found out they didn't.

Not at all.

Action Alerts PLUS, which Cramer co-manages as a charitable trust, has no positions in the stocks mentioned.