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Jim Cramer: A Forward-Looking Fed

Stocks in this article: TGTWMTSHLDJWNSKS

Editor's Note: This article was originally published at 7:15 a.m. EDT on Real Money on Sept. 19. To see Jim Cramer's latest commentary as it's published, sign up for a free trial of Real Money.

NEW YORK ( Real Money) -- Let's say Federal Reserve Chairman Ben Bernanke ran the nation's biggest retailer instead of the world's biggest hedge fund. Let's say you are a retail analyst. Given what you know -- which is that a repeat of the 1995-1996 government shutdown is about to occur -- would you be taking numbers up or would you be slashing them?

I think the answer's pretty clear: You would be slashing them. You know that a shutdown is bad for business. It was bad back then when the economy was very robust, and it will be much worse right now. You would not be saying, "Hey, there's been a decent amount of hiring in the last months. I am raising numbers." You would be saying, "I have to cut numbers because the last government shutdown slowed down all spending and really hurt commerce."

If you hadn't cut numbers, you wouldn't have been a terrible analyst. You would have been looking backward, not forward.

Yet, on Wednesday I heard a great deal that was about how things are so much more robust now than when the Fed first hinted at a scaledown of the bond-buying program. I heard about how Bernanke is nuts to be cautious, and that he should have followed through with some cutback.

Why?

Why should he have?

What's happened since he first started talking about cutting back?

First, interest rates spiked well beyond innate demand, and mortgage and refinancing rates went up so much that there's been a dramatic plunge in applications. Ever since the spike, banks have been trying to fire as many people as possible. They're doing so with a level of alacrity that is shocking and frightening if you've worked at one of these places.

Second, retail sales crumbled. We tend to forget which firms had shortfalls, but it is a real "who's who" of retailing: Macy's ( M), Sears (SHLD), Wal-Mart (WMT), Target (TGT), Nordstrom (JWN), Saks (SKS), Gap (GPS) and J.C. Penney (JCP). Every one of them said that things are softer than expected. I think it is safe to say that this has been the worst back-to-school season since the Great Recession began.

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