The market may have set expectations for rate cuts too high, Jim Cramer says

After a year of impressive gains, CNBC's Jim Cramer reviewed what could make the market falter — namely investors' high hopes for rate cuts from the Federal Reserve.
"Given all of the success we've had in this market, we need to guard against complacency," Cramer said. "That's why I'm flagging my biggest worry — that the market might be getting too aggressive with its expectations for rate cuts over the next year."

After a year of impressive gains, CNBC's Jim Cramer reviewed what could make the market falter — namely investors' high hopes for rate cuts from the Federal Reserve.

"Given all of the success we've had in this market, we need to guard against complacency," Cramer said. "That's why I'm flagging my biggest worry — that the market might be getting too aggressive with its expectations for rate cuts over the next year."

The central bank has cut rates twice this year — by a hefty 50 basis points in September and then by 25 basis points last month. The committee said in a November statement it "judges that the risks to achieving its employment and inflation goals are roughly in balance," but that the economic outlook is "uncertain," adding that it will continue to monitor new data.

Cramer said he wouldn't be surprised if the Fed decides to "slow down with the rate cuts" because the economy seems solid. He also pointed out that, although in line with expectations, two key Fed metrics ticked up slightly in recent reports — the consumer price index and the personal consumption expenditures index.

There are other important pieces of data to come before the Fed meets in two weeks, including a jobs report on Friday and a new CPI reading next week, Cramer stressed. The Fed must also weigh the economic implications of President-elect Donald Trump's term — such as heavy import tariffs that could be inflationary, he continued.

"The market's betting on a December rate cut," he said. "Anything that derails that will be bad news for the averages."