One of the Federal Reserve's chief goals may be to curb inflation in the U.S. economy, but when it comes to wage inflation, the central bank should be careful how it proceeds, CNBC's Jim Cramer warned on Wednesday.
"In short, the Fed should be careful what it wishes for" as it decides how many interest rate hikes to put through as the economy heats up, the "Mad Money" host said. "Why not let the economy run a little? Would it really be so terrible if we went over the precious 2 percent inflation target?"
But if Friday's nonfarm payroll report from the U.S. Labor Department reveals higher-than-expected job creation, it could spur the Fed to act quickly to stop inflation and stifle wage growth in the process, Cramer said.
"The real issue here, the crux, [is] there's been almost no wage inflation in this country for decades. Income inequality is a serious problem in this country, and it's a problem that the Fed has absolutely had a hand in creating," he said.
"How the heck are working people supposed to catch up if our central bank slams on the brakes every time wages incrementally go up?" he continued.
The "Mad Money" host pointed out the various downward pressures on wage growth, including the rise of cloud-based technology and automation and the growth of price-slashing giants like Amazon.
"When I look at Amazon, I'm seeing a company that's working to control wage inflation by embracing automation at its warehouses and eliminating monthly bonuses and stock grants," Cramer said. "Even with this pay raise, Amazon is one of the most powerful deflationary forces on earth. I defy you to think of a company that's done more to lower prices."
So as the job market grows tighter but wage growth stays relatively stagnant, Cramer argued that perhaps the Fed shouldn't be so eager to raise rates at any sign of economic expansion.
"It just seems crazy to me that the Fed would even think about potentially throwing us into a recession here — and that's what I'm talking about — all to stop wages from finally catching up with where they should be," the "Mad Money" host said.
"Here's the bottom line: the Fed needs to consider what it can control and what it can't control," he continued. "I think it would be a grave mistake for them to be so darn dogmatic about rate hikes, which may prove to be unnecessary here. In other words, a little inflation is not the end of the world, but a recession? That would just be terrible."