- Between signals of slowing inflation and the U.S.-China trade dispute, stocks could benefit from a more "rational" Federal Reserve, CNBC's Jim Cramer says.
- The "Mad Money" host lists the various economic pressures he sees and checks in on the state of U.S.-China trade.
The Federal Reserve needs to take note of the economic forces already weighing on the U.S. economy before it plans more rate hikes for 2019, CNBC's Jim Cramer argued after yet another wild trading session on Wall Street.
"It's important to recognize that the most important inputs ... for future inflation are already going lower, not higher. It'd be crazy to ignore that," he said Tuesday. "While I think [Fed Chair Jerome] Powell's been mistaken in his approach, he's not crazy. The man is prudent — there's no reason for him to be rash, especially not with the deflationary impact of the strong dollar helping him."
As the strong dollar squeezes global companies' profits because overseas currencies are translated into fewer dollars, higher interest rates are crimping domestic demand for real estate, Cramer warned on "Mad Money."
"We've seen steady deceleration in real estate and construction projects at a host of banks. American Electric Power, ... the biggest utility in the country, talked about a downtick in activity," he said. "We know that housing starts and housing sales are just abysmal. And while Home Depot assured us of stronger sales, it acknowledged that housing is slowing."
Worse, U.S. crude oil prices just reached a one-year low after 12 consecutive days of declines, and prices of basic economic building blocks including lumber, copper, chemicals and paper are falling, the "Mad Money" host noted.
"The action, to me, screams 'slowdown,'" he said. "Yes, we still have wage inflation, I know. People are making a little more money. But how long will that last if all of these important commodities are turning down?"
At the same time, President Donald Trump's administration is in the heat of a trade dispute with China, which is expected to come to a head when Trump meets with Chinese President Xi Jinping at the G-20 summit later this month.
Cramer said the slide in commodity prices could be tied back to a weaker Chinese economy and added that he was "getting inklings that our companies that do a lot of business in China ... are putting the hurt on China itself."
That, paired with White House economic advisor Larry Kudlow's more positive remarks on Tuesday about U.S.-China trade talks, leaves "room for serious negotiations with China" ahead of G-20, Cramer argued.
"So, let's watch weakness in this country and in China," he told investors. "As crazy as it sounds, both are actually bullish for the stock market — although not for the companies or individuals involved — because weakness means we're more likely to get a rational Fed and possibly some kind of trade deal."