The Federal Reserve's "sole method" to fight inflation by hiking interest rates has "backfired," CNBC's Jim Cramer said Wednesday.
In its fight to curb housing inflation in particular, the Fed has been trying for months to not just slow inflation but reduce the value of housing and the cost of rent, Cramer continued.
The reality is different. "In fact, the rate hikes, at this point, are boosting the price of shelter," he said.
Cramer used a hypothetical property developer as an example, who looks to take advantage of higher rents in a particular area. Typically, he said, developers will go to a bank (most likely a regional one) to secure funding.
But due to a glut of pandemic-era monetary supply, banks parked cash in longer-dated bonds that make it difficult to extend loans to that developer. Now that rates have been hiked, Cramer said, those banks can't sell those long-dated bonds without realizing a huge loss: a situation similar to what happened with the collapse of Silicon Valley Bank.
The rate hikes spark tighter lending standards, which make it harder to get a loan from a bank, which in turn constricts housing supply, Cramer said, meaning that the value of housing stays high and that rents don't come down as much as the central bank would like.
"They've defeated themselves," Cramer said.
Fed Chair Jerome Powell is a "prudent" chief, but other more hawkish policymakers want to keep hitting rate hikes, he said, whether or not they're really needed.
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