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The Fed Effect & How To Play It

On Thursday night the Federal Reserve, in a surprise move, lifted the discount rate, or the rate at which they lend money to banks. The consensus from Wall Street, Cramer said, was that the Dow could go down some 200 points from the opening bell, but instead the markets actually went up. The Mad Money host offered what he thought were the reasons why:

First, the discount rate doesn’t affect 99 percent of the borrowing in the country, so this Fed’s move can be seen as a bit symbolic.

More importantly though, Cramer said, “Investors should care more about the federal fund rate increases because they directly affect how banks borrow and what they pay you for deposits.”

The good news, Cramer said, is that the federal fund rate has not been increased at all, and most traders don’t sell stocks until after the third Fed tightening of this key metric.

Also, the discount rate being raised could be based on the Fed having information that indicates employment is getting better, Cramer said.

So, he thinks the best group for investors to buy is industrials. These kind of Fed actions often go right to the bottom line of companies like Caterpillar, Nucor and Honeywell International.







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