With its ultra-low interest rate policy and massive bond buying, the Federal Reserve has diminished the role of the free market in determining asset prices, according to one investor.
"I believe that the free market is the best allocator of resources, and we don't have a free market in money and I'd like to have one," Howard Marks, the chairman of Oaktree Capital said in an interview with CNBC's "Closing Bell" this week. He added that the Fed needs to get out of the business of regulating money and stop and penalizing savers and lenders with near-interest rates.
The U.S. central bank delayed a rate hike at its September meeting in the face of uncertainty about the global economy, a market sell-off in the U.S. and concern that inflation might fall further away from the Fed's 2 percent target.
With the global economy on the backfoot and U.S. job creation slowing — on Friday, Labor Department data showed that the economy generated about 142,000 jobs, far below consensus estimates — the case is growing for the central bank to preserve the status quo on monetary policy. Marks, however, disagreed.
There will always be reasons not to hike, but "what about the reasons to do it?" Marks asked.
"I don't know if you're ever going to find a perfect time to do it, I think it's desirable and it seems that there is always some reason not to do it," he added.
Marks' argument echoed those of Fed critics like analyst James Grant, who told CNBC in an interview this year that the central bank's "radical monetary policy" was like a "virus," and that interest rate normalization "will not be wholesome."
Last month, the International Monetary Fund urged the Fed to wait until at least next year to hike rates. At least for now, the central bank is proceeding full steam ahead: more than a week ago, Fed chair Janet Yellen cautioned that a tightening of policy was in the offing before year's end.
Still, a debate is raging over whether the worsening global economy will force the Fed to stay its hand. Marks told CNBC a rate hike was "a good idea in principal ... [but] I'm not talking about the specific timing" — that's the Fed's job.
Some investors say the Fed's decision to hold off on rising has increased market uncertainty, but Marks said "investors have to know that it's their job to bear uncertainty."
His advice for investors: Have a balance of offensive and defensive assents in your portfolio and favor caution.
Similarly, Karissa McDonough, a fixed-income strategist at People's United Bank, is telling her clients to reposition their fixed-income portfolios and to scale back on risk. With its involvement in the markets, the Fed has, effectively, set a floor on valuations, but that put will soon go away, and investors — especially those investing in fixed-income assets — should prepare for that to happen soon, according to McDonough.
When the Fed does decide to lift off, "we're going to go back to historical volatility level and returns are going to be compressed," McDonough said.
"In this environment, the Fed is affording us an opportunity with this delayed hike cycle to reposition portfolios and to exit or reduce exposure to riskier asset classes," McDonough said.
"This is certainly not the time to bottom fish; this is a time to upgrade the quality, even within the risky high-yield space."