Oaktree Capital Management cofounder Howard Marks.
K. Y. Cheng/South China Morning Post via Getty Images
US businesses will soon feel the full force of rising interest rates, according to Howard Marks.
“Many more companies are going to founder,” the Oaktree cofounder told Bloomberg.
The Federal Reserve has aggressively hiked borrowing costs over the past 18 months in a bid to curb inflation.
US companies are about to feel the brunt of the Federal Reserve’s battle against inflation, according to billionaire investor Howard Marks.
Speaking to Bloomberg’s David Rubenstein, the Oaktree Capital Management cofounder warned that more businesses are likely to default on their debt repayments because the central bank’s aggressive interest-rate hikes have made it so much more expensive to borrow cash.
“You go into a period when it’s difficult to raise money, even for a good purpose, clearly many more companies are going to founder,” Marks said in an interview that will be broadcast in full on October 3.
Between March 2022 and July 2023, the Fed lifted rates from near-zero to around 5.5% in a bid to crush soaring prices.
While inflation has since started to fall away from four-decade highs, the number of companies filing for bankruptcy in the US has risen 13 months in a row, with that aggressive tightening campaign chipping away at their balance sheets.
Marks also told Rubenstein that even when inflation falls to the Fed’s 2% target, he isn’t expecting a return to the “easy money” era – referring to the period between 2009 and 2021, when interest rates were near-zero.
“You can’t live on a shot of adrenaline every morning for 13 years,” he said.
“I would like to see the Fed get to a neutral position, which is neither stimulative nor restrictive,” Marks added, saying that he thinks the central bank will hold borrowing costs between 2% and 4% once inflation has cooled further.