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Jim Cramer says the key to taming inflation is beating Covid, not higher interest rates

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Key Points
  • CNBC's Jim Cramer said Thursday he believes the primary solution to taming inflation is bringing the coronavirus pandemic under control.
  • "Prices are going up across the board because people don't want to die," the "Mad Money" host said.
  • "I think you cure this inflation not with higher rates, but with Pfizer, Moderna and J&J," he said.
VIDEO2:1402:14
Cramer says controlling Covid is the best way to tamp down inflationary pressures

CNBC's Jim Cramer said Thursday he believes the primary solution to taming inflation is bringing the coronavirus pandemic under control, suggesting traditional levers of monetary policy are ill-equipped to stamp out the price pressures rippling through the economy.

"For all the comparisons to Weimar Germany or the stagflation of the [1970s], our current bout of inflation is unique," the "Mad Money" host said, contending many of the root causes of the semiconductor shortage, supply chain disruptions, rising home prices and higher wages are related, in various ways, to Covid and fear of the disease.

"Prices are going up across the board because people don't want to die; they don't want their families to die; they don't want long-term health complications," Cramer said. "I think you cure this inflation not with higher rates, but with Pfizer, Moderna and J&J," he added, referring to the trio of companies behind the Covid vaccines available in the U.S.

Federal Reserve Chairman Jerome Powell recently acknowledged inflation has not subsided as quickly as he thought it would during the economic reopening from Covid closures. However, the nation's top central banker has been steadfast in his view that price pressures will eventually ease, as supply chain bottlenecks improve and pent-up consumer demand wanes.

Critics say the Fed is wrong to think inflationary pressures will improve on their own and believe its highly accommodative monetary policy, which includes an asset purchase program and near-zero interest rates, are no longer appropriate.

Cramer, who has routinely defended Powell's dovish approach throughout the pandemic, pointed to the shortage of truck drivers as one example of where the Fed's impact would be limited. The trucking industry's challenges were merely exacerbated by the Covid crisis, but health worries added another hurdle to hiring, Cramer said.

"The good thing about a labor shortage is that it's simple to fix: You just need to offer people more money," Cramer said. "Of course, that's expensive. This is a structural issue, not a transient one. But just because it's not transient, that doesn't mean the Fed can solve it. If anything, it might get worse in a weaker economy, meaning you can't fix this shortage with higher rates no matter what the hedge funds tell you."

Inflation in the housing and auto markets — both for new and used cars — represent areas of concern for many observers, Cramer said. However, Cramer said he believes those purchasing decisions are largely being driven by health concerns that would remain regardless of Fed policy.

"You have this combination of a fear of death and relentless innovation that's driving the housing and auto inflation," Cramer said. "If the Fed wants to cool down the overheating housing and auto markets, well, it needs to find a cure for Covid."

"What we're seeing now is a revolution in the way people live their lives and that revolution can't be stopped by higher rates," Cramer added.

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VIDEO12:0512:05
Cramer explains why he believes taming Covid is the ultimate cure for inflation

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