Marks Warns of Volatility as Fed Tones Down Forward Guidance

Howard Marks, co-chair of Oaktree Capital, is backing Federal Reserve Chair Kevin Warsh's push for a less talkative central bank. According to Marks, markets have become too dependent on policy guidance from the Fed. He believes that fewer signals from the Fed could lead to more volatility in bonds and rate-sensitive stocks.

Marks' comments align with Warsh's emerging philosophy, which was highlighted at Jackson Hole in August. There, Warsh argued that routine forward guidance has overstayed its welcome and may leave policymakers and markets overly committed to an expected path for interest rates.

The shift in the Fed's approach is occurring at a sensitive time, following last week's 25 basis point rate hike to 3.75%-4.00%. Marks warns that less guidance from the Fed could expose Treasury yields and equity valuations to surprises in inflation, employment, and economic growth.