Focus on earnings, not inflation data, with Fed in tapering cycle

CNBC’s Jim Cramer told investors Thursday not to fixate on the CPI report because it has become less important since the Federal Reserve began a rate-cutting cycle. Instead, he said it’s more useful to watch data on individual companies in the upcoming earnings season, which begins Friday.

“Forget the macro, folks — it’s not that important when the Fed cuts rates — and keep your eye on the prize: earnings,” he said. “At the end of the day, earnings are what control stock prices over the long term, and stocks are what we’re trying to make money from.”

The CPI – which broadly measures the cost of goods and services in the US – rose 0.2% in September, bringing the annual rate of inflation to 2.4%. That increase was slightly higher than consensus estimates, and major indexes fell as investors worried about stubborn inflation. However, the inflation rate has been falling since August and reached its lowest level since February 2021.

The Fed relies heavily on metrics like the CPI to make decisions about whether to cut, hold or raise interest rates. After four years of raising or holding rates steady, the central bank cut them by 50 basis points in September, marking an aggressive start to the tapering cycle. According to Cramer, whether or not the Fed cuts rates at its next meeting, the general direction of interest rates is down. It would take a huge increase in the CPI reading to change the Fed’s stance, he said, and Thursday’s numbers were not extreme.

But that doesn’t mean all economic metrics from the government don’t carry weight, he added, pointing to the monthly jobs report. He also explained that the CPI is always important to hedge fund managers who “spin the bond market,” which can make small moves because of the macro numbers.

“We should have been worried about these things when the Fed was on the warpath, either raising rates or leaving them higher for longer,” Cramer said. “Now, though, the Fed is your friend, so I wouldn’t obsess over the details, other than the monthly jobs report, which is still really important.”