Howard Marks, co-founder of Oaktree Capital Management, warned that the Federal Reserve's manipulation of funding costs could push investors toward higher-risk investments as returns moderate. He argued that lowering interest rates significantly below current levels serves little purpose.
In an interview, Marks stated, "I believe the Fed should generally remain passive, intervening only when the economy is severely overheating—risking runaway inflation—or in deep downturn with failing job creation. Neither scenario applies now."
On Wednesday, the Fed cut rates by 25 basis points to their lowest level since 2022, though policymakers remain divided on whether weak labor markets or persistent inflation poses the greater economic threat.
While President Trump demanded double the rate cut, Marks cautioned that excessively cheap funding encourages market complacency—fueling risk-taking under the assumption that central banks will always intervene to resolve crises.
"In a moderate-return environment, how do you chase higher yields? Most people take more risk. Unless opportunities are exceptionally compelling, I dislike this approach," he remarked.
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