Howard Marks: Fed’s legitimate goal to cut rates and extend an expansion

The U.S. economy doesn’t need any rate cuts, billionaire investor and Oaktree Capital’s co-chairman Howard Marks told CNBC, predicting there won’t be a recession for another two years.

H/T Dataroma

US economy doesn’t need any rate cuts, says billionaire investor Howard Marks

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Transcript

Talk about the global macro environment as well as the investment climate. I'm joined by a very special guest, Howard Marks, he is co-chairman of Oaktree Capital. He joins me right here for an exclusive chat. Howard, it's great to have you on the show. Thank you very much for your time.

Pleasure to be here.

Yesterday the Fed gave the markets what they wanted, which is essentially a 25 basis points rate cut. Now typically the market perceives the rate cut to be a buy signal. But yesterday's market reaction was rather muted. What does that suggest?

Well, number one, if events are anticipated, then maybe the rise takes place on the anticipation not the event. Number two. You know, there's a difference of opinion about whether a rate cut at this point in the cycle is a good thing or a bad thing. So I don't think that it's automatic, that rate cut market goes up.

But to your mind, is this rate cut a good thing or a bad thing? And does this rate cut have any effectiveness in the economic cycle as things stand right now? What does the last two rate last one in the previous policy, plus yesterday, mean for the economy?

The question is, what is the Fed trying to accomplish? What should it try to accomplish? You know, for a 100 years, it's been the job of central banks to control inflation. Then 30-40 years ago, they got a new job, which was to support growth of the economy so that jobs would be created. But this idea of preventing the next recession is neither of those two things. And it is a job that the Fed seems to have taken on now. And in his in his talk. Six weeks ago, Jay Powell talked about continuing the expansion. That's not necessarily the feds job. I put out a memo on the subject as you know, about a month ago called "on the other hand," and I put it out on a Friday and that Sunday, I happened to visit a friend who had a guest, a Fed president. And he said that there's a difference of opinion at the Fed as to whether they should be cutting at this point in time, and that he didn't think so. And he belongs to a group, which thinks that it's the job of the Fed to create growth over time. And the idea of creating growth over time and jobs over time sounds like a very good one to me, as opposed to creating growth and jobs every year.

But do you think the Fed needs to be proactive and had it not been for President Trump and his tweets? Plus the big fall in the market last December? Do you believe the Fed would have cut rates? Would they have given the markets these rate cuts?

Well, I don't know. A lot of people think that President Trump's influence on Chairman Powell contributed to the rate cut it may have been or not Powell, the trumpets his independence. But certainly, the Trump was beating him on beating on him to cut rates. And he did. You know, the .. that and that raises a very interesting question. Should the cut fed cut rates to stop the stock market from going down, which is different from the recession? You know, okay. So you want to create jobs? Okay, maybe you want to prevent recessions, which I don't think you can do in perpetuity, but do you want to cut rates because the stock market's going down? I think that's totally legitimate.

Because this rate cut seems more like something that's addressing the sentiment, the need of the hour, rather than it having anything, anything to do directly with protecting the economy, right.

So you may say, pandering to investors, I think that's right, but...

And notot surely the feds job.

That's not the feds job. And by the way, our economy is doing pretty well. And normally, you would cut rates as we did 10 years ago, to get an economy going. It's stalled global financial crisis, lots of declines. You want to cut rates to get it going. Okay, that's fine. 10 years later, do you want to cut rates to extend an economic expansion, which is the longest in history? Again, some question I question whether that's a legitimate goal.

Do you also question the strength of the US economy and whether we are heading towards a recession? That's the big question. That's the question that the markets been obsessing over.

Well, number one, people say to me, are we heading to recession? We're always having to recession. Question is, this year next year or five years from now?