Stocks are controlled by two masters: oil and the Federal Reserve, Jim Cramer says. The key is to keep them separate because if the two masters bump into one another, the results could be disastrous.
They collided on Tuesday following the report that the U.S. consumer price index rose 0.4 percent last month, which was higher than the 0.3 percent expected. The fear of higher inflation introduced the theory that rising oil prices could mean that the Fed will institute multiple rate hikes this year.
"If that is the case, there is more downside ahead even as I think you could make a very convincing argument that the inflation we have right now can't be curbed by higher rates," the "Mad Money" host said.
At this point, Cramer is praying that Fed chief Janet Yellen is flexible enough to see that the Fed can't stop inflation.
The most worrisome factor to Cramer was the increase in the cost of gasoline. For a while it seemed that oil could rally and propel the market higher, it seemed like a win-win situation because it didn't show up in inflation numbers.
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"Suddenly the increased price at the pump has moved the needle to the point where the CPI simply can't be ignored by the Fed," Cramer said.
Oil has now become the tipping point in the discussion of whether the Fed will raise rates next month in order to curb inflation.
Yet, Cramer found the argument for inflation clueless on many levels. Things like housing and health care costs that are impacting inflation cannot be controlled by the Fed. Additionally, higher rates would be disastrous for oil producers who are trying to meet the demand of bankers. Higher rates could mean marginal producers could sink and energy inflation could accelerate.
"In other words, higher rates won't stop this kind of inflation. If anything, a rate hike right now could make inflation worse," Cramer said.
While Cramer acknowledged that one slightly overheated inflation number can't change the entire outlook for the market, it does reintroduce the notion that two rate hikes this year are possible. Many bulls were convinced there would be none or only one.