The troubling signs in the stock market — rallies in recession-era favorites like utilities and retailers and breakdowns in economically sensitive stocks tied to construction and housing — are all but lost on the Federal Reserve, Jim Cramer argued Monday.
"When I scrutinize the charts of, say, Weyerhaeuser, Vulcan Materials, Martin Marietta Materials, U.S. Concrete, Home Depot, Terex, United Rentals, Mohawk, PPG [and] dozens of others that are involved in the construction ... of housing in particular, it screams 'slowdown,'" the host of CNBC's "Mad Money" said. "Yet I honestly believe that if Fed chief Jerome Powell looked at these stocks, it might mean nothing to him."
"He's becoming like a racehorse with blinkers on," Cramer continued.
This kind of widespread weakness in the housing sector has historically signaled "some really severe economic downturns," Cramer warned.
Layer on the pain from mortgage rates of 5 percent, which Cramer suggested was something of a breaking point for the economy earlier on Monday, and there could be severe implications for more than just the housing stocks, he said.
The 30-year fixed-rate mortgage rate was at 4.85 percent on Thursday, according to Freddie Mac, after spiking to 4.9 percent the prior week in the rising bond-yield environment. A year ago, the 30-year mortgage rate was at 3.88 percent.
"Perhaps the most egregious performers last week were the industrials, the perfect bookends to the collapse of housing because they're under attack from both the trade war and the Fed. Can you imagine?" Cramer said.
But the Fed, and the market commentators who think the central bank is correct to raise interest rates four more times, are willing to ignore the many negative signals strewn across the stock market, he said.
"Look, maybe these stocks are all wrong, every one of them. Maybe the fact that CSX went down after that fantastic quarter means nothing. Perhaps we shouldn't even care about PPG [or] Wabash National. Maybe the Fed thinks that the action in the stock market is arbitrary, capricious and random," he said.
If that's the case, then Cramer's earlier theory that the Fed would "blink" — in other words, hike rates once more in December, as planned, and then take a break to reconsider the economic layout — is unfounded, he warned.
"If that's what Powell believes, then he's not going to blink," he told investors. "But if he's more in touch with reality, this would be a great time to say, 'We'll reassess after the December rate hike.' Those words would send us soaring higher, but whether or not we'll hear them [is] an open question."
—CNBC's Berkeley Lovelace Jr. contributed to this story.