Howard Marks warns: Further interest rate cuts by the Federal Reserve are of little significance

Howard Marks, co-founder of Oaktree Capital Management LP, warned that the Federal Reserve's "interventions" on the "cost of capital" will force people to turn to higher-risk investments as the return environment becomes more moderate. Marks believes that current interest rates are low enough and that further reductions would be meaningless.

In a media interview, Marks stated, "I think the Federal Reserve should mostly remain passive, only stepping in when the economy is severely overheating and heading towards malignant inflation, or when it is severely weak and unable to create jobs. I do not believe we are in that situation currently."

The Federal Reserve lowered interest rates by 25 basis points this Wednesday, bringing them to the lowest level since 2022. However, there are divisions among Fed policymakers: some are concerned about a weak labor market, while others believe stubborn inflation is the greater threat.

Although U.S. President Trump stated that Fed Chairman Powell should double the rate cut, Marks pointed out that excessively low rates reinforce the notion that the Fed will step in to solve market problems at any time, thereby pushing investors to take on higher risks.

He said, "In a moderately returning environment, if you want to achieve high returns, most people will take on more risk. But unless the situation is extremely attractive, I do not like to do that."

Earlier this week, Marks wrote in a blog post that he is "fearful" of the impact of artificial intelligence on employment. He also questioned whether it is reasonable for current mega-tech companies to incur debt at extremely low costs to push for AI layouts when demand remains uncertain.

In Thursday's interview, he stated that the current market conditions appear healthier than during the tech bubble of 2000. In the AI sector, due to greater upside potential, equity may currently be more attractive than credit