Market veteran Howard Marks says Fed is 'not going back' to ultra-low rates

The Federal Reserve will not bring interest rates back down to their post-financial crisis lows, according to veteran investor Howard Marks — and he believes that's a good thing.

"The U.S. economy is doing quite well, and so it's not clear that it requires stimulus," Marks told CNBC's Frank Holland on Tuesday.

The current federal funds target rate of 5.25% to 5.5% is an "emergency measure designed to cool off the economy and inflation," Marks said.

"One of these days we'll declare victory against inflation, and the Fed will take rates down to something moderate and sustainable. I think that's in the threes."

The Fed pulled rates to near zero through 2007 and 2008, before taking them slightly higher between late 2015 until the Covid-19 pandemic. Between 2009 and 2021 the federal funds rate averaged 0.5%, Marks said.

"My thesis is, we're not going back there to rates of zero, or a half, or one. I think that that is unnecessary stimulus, and I don't think permanent stimulus is a good thing," he said.

"I think that interest rates should most of the time be set by the free market. That is to say the negotiations between borrowers and lenders, as opposed to having a central bank tell people what the rate should be. So I hope we're going back to that climate."

There are "significant ills" in holding rates too low and creating a "permanent posture of stimulus," he added.

Marks contended in a series of notes published in 2023 that low rates over the 13 years following 2008, skewed the behavior of participants in the economy and markets, calling the period "easy times, fueled by easy money."

The impact of such ultra-low rates includes overstimulating the economy and fueling inflation; making risky assets more attractive than they should