Soft landing will be ‘difficult’, says PE veteran

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The Federal Reserve’s ability to pull off a soft landing — an ideal scenario in which the Federal Reserve curbs inflation without triggering a severe downturn — will be “very, very difficult,” private equity veteran Scott Sperling warns.

“We should be very careful … given all of the complexities,” Sperling, who is the co-CEO of THL, told me at Yahoo Finance Invest on Tuesday. “We’re in a relatively difficult period over the next 15 to 18 months … It’s going to be a choppier economy going forward.”

A softer labor market, soaring interest rates, and a more cautious consumer have prompted more Wall Street veterans and strategists to warn of a downturn.

THL co-CEO Scott Sperling discusses recession risk, investment opportunity at the Yahoo Finance Invest summit. THL co-CEO Scott Sperling discusses recession risk, investment opportunity at the Yahoo Finance Invest summit.

THL co-CEO Scott Sperling discusses recession risk, investment opportunity at the Yahoo Finance Invest summit. (Yahoo Finance) (Phillip Angert)

DoubleLine Capital founder and CEO Jeffrey Gundlach stuck with his prediction of a recession at the Yahoo Finance Invest conference, saying the concept of higher-for-longer rates worries him the “most.”

In its fight to tame inflation, the Fed has raised interest rates to a 22-year high to try and cool the economy. While restrictive policy has reduced price growth far below 2022’s peak of 9.1%, the highest level in over 40 years, it’s still well above the Fed’s 2% target.

The Fed’s preferred inflation measure, the Personal Consumption Expenditures Index, held steady at 3.4% in September for the third month in a row — signaling once again the inflation battle is far from over.

In remarks before the International Monetary Fund in Washington on Thursday, Jerome Powell signaled rates will likely be kept higher for longer. He also made it clear additional rate hikes are still on the table. Powell said the central bank is “not confident” policy is restrictive enough to get inflation back to its 2% mandate.

Sperling urges caution, warning recent data doesn’t appear as strong when you “look below the surface,” and moving too quickly on rates could put the US economy in an “even worse situation.”

When it comes to investing, Sperling said this “environment provides a lot of opportunity.” His advice: “Pick sectors with very strong secular tailwinds.”

“One of the things that makes me optimistic in this scenario is that innovation has always re-enabled growth in the United States. Generative AI and the promise it has for increased productivity is very significant. And there’s enormous potential in life science to not only better people’s lives, but do it in ways that are much more cost effective and add to productivity,” he said.

Seana Smith is an anchor at Yahoo Finance. Follow Smith on Twitter @SeanaNSmith. Tips on deals, mergers, activist situations, or anything else? Email [email protected].

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