Jim Cramer knows that the central bank in the U.S. is supposed to be separate from politics. But on the night of the Iowa caucus, where two extremist candidates are poised to do well, he had to acknowledge the connection between these two subjects.
The fact is that the Fedreally matters. Not just in terms of monetary policies and the economy, but in terms of America's political stability.
"Second, right now, the Fed seems to be doing a pretty terrible job," the "Mad Money" host said.
If the Fed continues on its slated course of raising interest rates four times this year, Cramer thinks it is very likely that the U.S. will go into a recession.
Cramer fears that the Fed will flub the statement at its next meeting in March, and Yellen won't make any decision to hold off on rate hikes. This could give the impression that the Fed is waiting for the right time to slam on the brakes and could even consider reversing the last rate hike and go back into quantitative easing mode.
"In a way, the Fed holds this whole presidential election cycle in its hands," Cramer said. (Tweet This)
Cramer believes that the Fed has the power to create real damage to the economy by continuing to raise rates. If that happens, candidates he views as extremist — like Donald Trump and Bernie Sanders — will gain a lot more traction.