Carlyle CEO Harvey Schwartz Talks Federal Reserve and AI

Harvey Schwartz (0:02)

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Dani Burger (0:07)

I'm here at Carlyle's event, and sitting down with the man of the hour. It is the CEO of Carlyle, Harvey Schwartz. Harvey, great to see you, and thank you for having us.

Harvey Schwartz (0:15)

Great to be here, and thanks for joining us.

Dani Burger (0:17)

And look, you're convening hundreds of your investors here today, and it's probably not lost in anyone that if we were to just walk about a mile away, we'd be at the Eccles Building where the Fed is starting their rate decision.

If you were to give them advice, Harvey, because you see into the lens of hundreds of your companies, what are you seeing? Are rates restrictive? Is inflation a problem? Is this a Fed that needs to be hiking rates tomorrow?

Harvey Schwartz (0:40)

Dani, again, thanks for being here. As you said, we have 400 investors from all over the world have traveled here, some of the most sophisticated investors in the world. And these are questions that are front of mind. And we have a very, we've talked about this a lot. We have a very unique proprietary data set, as you mentioned, and 15 years ago, we started breaking down the data set and the insights into these portfolio companies. So it's several hundred portfolio companies that employ about 750,000 people around the world. What that data set says is amidst all the backdrop of noise, of structural change around the world, de-globalization, the conflict in Iran, the war in Europe, what that data tells us is the economy is doing quite well.

GDP coming out of August looks like two and a quarter, two and a half percent. The consumer has been quite resilient.

EBITDAI is growing. And so really against a backdrop of uncertainty, the economic engine is doing quite well. Inflation has remained sticky, but it's not accelerating, but it's not decelerating. And so I think in terms of the Fed, our folks are not that focused on what any one individual Fed decision means. I would say we're at a period where the Fed will continue to watch the data. The markets obviously are expecting a hike, but it doesn't feel like we're entering a hiking cycle. It doesn't feel like we're entering a cycle where we're going to be cutting rates aggressively. And for those that are always wishing for rates to go back to zero, that generally is not consistent with an economy that's doing as well as ours is. So I think the Fed's got their hands full, but I think the market's already made its prediction on what the Fed's gonna do.

Dani Burger (2:25)

Well, I remember in the last rate hiking cycle in 2023, you basically had said, look, we can handle higher rates. It's predictability that's important. Harvey, we're in a scenario now where you have a Fed chair who wants to give less forward guidance. You have an activist treasury. You have issuance from the hyperscalers that's moving around rates. You have an energy crisis.

Do we have a predictability problem with rates right now?

Harvey Schwartz (2:48)

I don't know that we have a predictability problem. I think that the Fed chair has announced a series of initiatives which we think are welcomed by the markets over the long run. I think it's a question of the pacing of how those get implemented. I think that there was a series of policies for the past decade which really were anchored around lower rates, lower rates globally. We have for years now, for three years, been working under the assumption that rates would be structurally higher. Why? Because deficits are larger. The demand for capital around the world is very high.

De-globalization is really driving a complete reordering of priorities around the world, in terms of how governments and companies think about economic growth. These structural changes are not going away.

When you think about the priorities that countries have, companies have around security, whether it's national defense in a traditional sense, or investing in economic growth, data security, energy security, all of this investment requires durable capital. And with deficits being as large as they are, we would expect rates to be structurally higher. But on any relative basis, historically, they're really not that high. For us, in working with our clients, it's about the cost of capital, being disciplined about deploying that capital, and that's how we're focused.

Dani Burger (4:17)

We've been really active throughout this whole period. Presumably, higher rates doesn't really curve that activity. If it's not higher rates, it's not oil at $100, it's not tenure yields at 5%. Is there anything that can slow this train down at the moment, Harvey?