The Stock Market and the Fed: We've Been Warned

One of the principal reasons for the stock market rout is the Federal Reserve's higher-interest rate policy. [bold added]

Fed officials have signaled in recent days they plan to proceed with another quarter percentage point increase in their benchmark short-term interest rate when they meet Dec. 19, marking their fourth rate increase this year. The market pullback does underscore however the uncertain outlook for what the Fed will do after that.

Fed officials are divided over how many times the central bank will raise rates next year. Projections released after the Fed’s meeting in September showed officials are roughly equally split over whether the economy will require two, three or four rate rises next year.

CNBC's Jim Cramer has been increasingly vocal about the Fed's actions, openly pleading with Fed Chairman Jerome Powell to pause after the December hike.

On Tuesday he made his strongest pitch yet that 2019 should not have any rate increases at all. He fleshes out his eight reasons (pictured right) at the link---his fundamental argument is that the economy is softening more than the Fed data shows.

Long-term Treasury rates are the most important driver of the stock market, and the short-term rates that the Fed controls drive the long-term rates, albeit not perfectly. If the Fed won't budge from its 2019 rate increases, the financial models tell us the stock market will go down. We've been warned.