The notion that the Federal Reserve can continue to fuel the US economic recovery and stock market rally without a break is “too good to be true,” especially given “reasonable” fears of rising inflation, billionaire Howard Marks said in a new one Investor letter on Tuesday.
The co-founder of Oaktree Capital Management says it is “still groundhog day” for investors, with market conditions barely changing in a few months as stocks remain near record highs despite rising inflation worries.
The US economic recovery, which began in late 2020, “remains underway” and stocks have continued their meteoric rise since March 2020, but “there is still no consensus” on whether higher inflation will prove temporary or permanent, said Marks.
Concerns about rising inflation are “justified so far”, although it remains unclear whether the current rise is caused by the monetary policy of the Federal Reserve or persistent supply chain and labor market bottlenecks.
While the central bank’s role in the past has been to control inflation and monitor economic growth, in recent years the Fed has “taken on the additional role” of stimulating markets by lowering interest rates and injecting massive amounts of liquidity into the economy Marks.
The billionaire investor also criticized progressive Democrats who opposed Jerome Powell’s nomination for a second term as Fed chairman for his lack of action against climate change.
“So now we have a Fed that is supposed to control inflation, promote growth and employment, support markets and fight climate change – how many roles can an institution have and still maintain coherent efforts?” Asks Markus.