Cramer explains why the market melted down after the Fed cut rates

CNBC’s Jim Cramer on Wednesday walked investors through the markets’ fall after the Federal Reserve cut its key interest rate by a quarter percentage point and indicated that there will likely be fewer cuts than expected next year.

“After listening to Fed Chief Jay Powell this afternoon I think a lot of people got even more baffled,” he said. “Because he seemed to get caught having to fulfill a prediction of the need for a rate cut and that need was no longer self-evident. The data didn’t back it up.”

Cramer questioned Powell’s assertion that the decision was a close call, and suggested that looking for progress on inflation while cutting rates is a bit of an oxymoron. Powell’s mixed messages are a big reason behind Wall Street’s disappointment with the announcement, Cramer said. He furthered that a major problem making the Fed’s job tricky is that there are two economies right now, one that’s on fire and the other that’s stalled out, which come together in a peculiar way.

Cramer looked at contract manufacturer Jabil as an example. The company makes electronic auto parts, medical devices, tech hardware, robotics and more. The company’s stock was up more than 7% after it reported a solid quarter and raised its full-year forecast. Much of that strong earnings report was due to Jabil’s cooling technology for data centers, which is a hot commodity as the U.S. needs more energy than it has, Cramer said. On the other hand, another segment of Jabil that’s focused on industries like renewable energy and electric vehicles is ice cold, he added. Cramer said that the company can be seen as a microcosm of our economy, with different components in drastically different waters in the economy.

Weak industries like housing and autos are met with rising inflation in food, insurance, healthcare and rent, which require different answers from the Fed, Cramer said. He added that there are a few issues the Fed might be underestimating, including rampant speculation in the markets and the historic rally for Bitcoin. For Cramer, he sees the issues surrounding the Fed’s announcement as a pattern. While some investors will say the Fed’s fanning the flames of inflation with this rate cut, others will say that without fanning the embers, the fire will go out, he said.

“In the end, I really wish the Fed hadn’t been so definitive about the need to cut rates going forward, albeit more slowly,” he said. “We would’ve been much better off if they’d explicitly taken a wait-and-see approach before this meeting. This time, they telegraphed the wrong thing — hence today’s meltdown.”