Scott Sperling discusses the economy, interest rates, and more on CNBC’s Squawk Box

Scott Sperling discusses the economy, interest rates, and more on CNBC’s Squawk Box on October 6, 2023

Key Takeaways:

• Deflationary forces that enabled near-zero rates of the past decade are reversing; while rates are increasing, they are unlikely to reach historical highs.
• Despite concerns about government debt and other economic challenges, the U.S. has a history of resilience and innovation that is proven to overcome challenges.
• Scott Sperling, co-CEO of THL Partners, joined Joe Kernen, Becky Quick, and Andrew Sorkin on CNBC’s Squawk Box to discuss the state of the economy, interest rates, and more.

On October 6, 2023, THL co-CEO Scott Sperling went on CNBC’s Squawk Box to discuss the September Jobs Report, the state of the economy, and rising interest rates. During the conversation — with Joe Kernen, Becky Quick, and Andrew Sorkin — Sperling notes reversing deflationary forces and suggests that recent rate increases may not be an anomaly but rather a return to normal levels. Despite ongoing economic uncertainties, we believe the country’s resilience and innovation hold promise for the challenges ahead.

Current interest rates are not so abnormal

Kernen referenced the September 2023 jobs report in relation to federal interest rates and introduced the idea of “normalized interest rates.”

The bottom line: recent rate increases may not be an anomaly. Speaking anecdotally about the early 1980s, Sperling said, “When my wife and I got our first mortgage, we paid 17.5%… Looking at rates that are in the range that we have here are not so abnormal. In other words, it’s not that this should be such a blip, that it should then immediately come back down to the zero rates, that one could argue the anomaly was the last decade or so.”

Deflationary forces are reversing

We believe this anomaly is the result of reversing deflationary forces, such as globalization, technology innovations that have brought down energy prices, and more. We believe that the reversal of these forces could lead to higher rates in the future — but are unlikely to reach as high as they’ve been historically.

Sperling added, “And the interest rates brought down the cost of capital dramatically in the fact that the Fed expanded its balance sheet from about a trillion dollars to well over 10 trillion and now sits about eight. So again, much higher than we saw historically, those things are going away. And that suggests to me that whatever higher longer means, it’s definitely going to be longer. And I suspect it’s going to be maybe not quite as high as we have now. But they’ll be higher.”

Innovation and entrepreneurial spirit is solid

The conversation touched on the impact of the government’s debt, which has been largely financed with short-term instruments. This creates a potential mismatch between assets and liabilities and adds to economic — and political — challenges.

But as Sperling mentioned, “We are the United States and it tends to have worked out for us over long periods of time, no matter what. And I think you have to come back to innovation, the entrepreneurial spirit that really still typifies this country more than very many others.”

In that mindset, THL continues to focus on companies that are secular growth drivers and that are poised to overcome these challenges.

Hear the entire conversation — which also discusses Exxon’s potential buyout of Pioneer and what we’ve learned from Ronald Reagan’s presidency — at CNBC.com.