The Fed cannot stop raising interest rates because of these four factors

CNBC’s Jim Cramer on Monday cited four reasons why the Federal Reserve hasn’t been able to stop tightening the economy yet.

1. Not enough people are re-entering the workforce. This makes it more difficult for the Fed to stamp out wage inflation.
2. There is a mismatch between job opportunities and job seekers. He said that while many more engineers are needed to implement the measures in the bipartisan Infrastructure Act and the Inflation Reduction Act, “the engineers have been laid off.”
3. There are a lot of people who work in customer relationship management, data analysis, and advertising. The abundance of these workers means that the enterprise software industry is “bloated” and more layoffs are likely to come.
4. Too many new companies have been created in the last two years. This has led to higher wages, he said, and it will take time for all capital to be destroyed while they struggle to stay in business.

“This market is being held hostage by the Fed, and the Fed will not stop tightening until it sees more evidence of real economic pain. Unfortunately, we’re not there yet,” he said.

Major indices generally rose last week after Federal Reserve Chairman Jerome Powell signaled the central bank may ease the pace of its December hikes, although Friday’s strong labor report held back stocks’ rally. Stocks fell on Monday amid investor concerns that policymakers could steer the economy into recession.

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

“Playing on the Fed’s next move is more an art than a science,” he said, adding, “You have to know when people are going to start returning to the workforce and when money-losing companies are going to let their workers go or simply go bankrupt.”