OffbeatCramer: Fed needs to take 'wait-and-see' approach to rate hikes for stocks to get 'sustained' rally

The action in Apple's stock tells you everything you need to know about this market, says Jim Cramer

Jim Cramer argues that the market's lack of conviction is perfectly captured by the movements in shares of Apple.

And while stocks rallied Tuesday morning for the reasons Cramer said could turn the market around, the Fed 's upcoming meeting, "above all," will determine whether the market can mount a " sustained advance," he said. "Today was a dress rehearsal for the kind of rally we can get if the Fed does the

Jim Cramer goes over the possibilities for Wednesday's pivotal announcement from the Federal Reserve and lays out the best outcome for the stock market.

The stock market's early-day rally on Tuesday was a "dress rehearsal" for what could happen if the Federal Reserve says Wednesday that it will take a "wait-and-see" approach on its interest rate policy, CNBC's Jim Cramer said as stocks reversed into the close.

On Wednesday, the Fed is expected to announce another interest rate hike in an effort to combat what it sees as rising inflation. Cramer, host of "Mad Money," has argued in recent months that while the U.S. economy can likely handle one more hike, the Fed's previous projection of three more hikes in 2019 could dramatically slow business.

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The Federal Reserve is piling up unrealized losses on its $4.1 trillion bond portfolio, raising questions about its finances at a politically dicey moment for the independent central bank. The Fed had losses of $66.5 billion on its securities holdings on Sept. 30, if it marked them to market, according to its latest quarterly financial report. That dwarfed its $39.1 billion in capital, effectively leaving it with a negative net worth on that basis, a sure sign of financial frailty if it were an ordinary company. The Fed, of course, is not a normal bank and does not mark its holdings to market.

A “ wait - and - see ” approach , as Capital Economics expects, may give the Fed more time to observe the market reaction to the Granted, the Fed helped fuel nearly all of that debt issuance, and the investor demand supporting it.And even if “At some point we need to get back to normal, meaning the Fed

Fed indicates it's staying the course on rate hikes despite growing criticism from Trump. Published Wed, Oct 17 20182:00 PM EDTUpdated Wed, Oct 17 Members said in the meeting notes that there might be a period where the Fed even will need to go beyond normalization of rates and into a more

And while stocks rallied Tuesday morning for the reasons Cramer said Monday could turn the market around, the Fed's upcoming meeting, "above all," will determine whether the market can mount a "sustained advance," he said.

"Today was a dress rehearsal for the kind of rally we can get if the Fed does the right thing tomorrow and repudiates the idea that we need a series of rate hikes in 2019, not just one more tomorrow," Cramer said Tuesday. "If we get the Fed on board, expect more positive action like we had this morning before the market gave up much of its gains."

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Here are the possible outcomes he could see from the Federal Open Market Committee's pivotal two-day confab:

First, the Fed could very well stand by its previously stated agenda of three more hikes in 2019 due to strong employment trends.

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Jim Cramer broke down his thoughts on Amazon’s recent moves, its impact on inflation and why he thinks the Federal Reserve should take notice. Want to take a deep dive into Cramer 's world? ( See LNC stock analysis on TipRanks)To find good ideas for stocks trading at attractive valuations

* Cramer : Fed needs to take ' wait - and - see ' approach to rate hikes for stocks to get a ' sustained ' rally (CNBC). Stocks to watch. FedEx (FDX) reported adjusted quarterly profit of .03 per share, nine cents above estimates, with revenue also slightly above Street forecasts.

"That would be completely disastrous," Cramer said. "Call it the 'Grizzly Man' scenario because it ends with us getting devoured by the bears."

Second, the Fed could put through the widely expected December rate hike, but say it will wait and see about the rest, citing "the collapse in oil prices ," the "Mad Money" host said.

"This is the rational approach, and if the Fed takes it, we could neutralize the bears among us," he said.

Third, the Fed could announce that it will not tighten rates again because of the already slowing economy. Cramer said this possibility was unlikely because, as an independent institution, the Fed would be hesitant to cave to President Donald Trump requests for this exact move.

"Bizarrely enough, this is a tough outcome to parse. While no rate hike would be the best result for the economy, and a lot of investors would be appeased, I think there'd be a cohort of money managers who panic because they take their cue from the Fed, and no rate hike means things are much worse than many of these guys seem to believe," he said.

Will landing be soft or "chaotic" as Fed begins to stop rate hike cycle

In June 2006, the U.S. Federal Reserve raised interest rates for a 17th consecutive time but cushioned the increase with a strong signal that officials were ready to stop the tightening cycle. Each rate increase in the previous two years had come with a cue that the U.S. central bank would continue to lift borrowing costs, but at that policy meeting the Fed said any additional hikes would "depend on the evolution" of the economy. require(["medianetNativeAdOnArticle"], function (medianetNativeAdOnArticle) { medianetNativeAdOnArticle.

Federal Reserve Chairman Jerome Powell meets with the media Wednesday to discuss action taken at this week's Federal Open Market Committee Read more: Trump makes one last try to get the Fed to ease up, but it likely won't work Fed needs to take ' wait - and - see ' approach to rate hikes for

Most Fed policymakers thought it likely another rate increase would be warranted "soon" if the U.S. economic outlook remains intact, and many participants saw little evidence of general overheating of the labor market, minutes Sign up for FREE and get : Real-Time Alerts. Advanced Portfolio Features.

"Remember, if we're going to get a sustained bounce, we need one thing above all others: after the rate hike everyone's expecting tomorrow, the Fed needs to make it clear that they'll wait and see rather than continuing to tighten," Cramer continued. "Without it, it's very hard to get a sustained advance."

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