Private equity's lowered expectations
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U.S. Treasury Sec. Scott Bessent. Photo: Stefani Reynolds/Bloomberg via Getty Images
Private equity entered 2025 with high hopes for a deals boom, to be driven by decreased regulation and interest rate cuts.
The big picture: That second part is increasingly uncertain, which perhaps helps explain why U.S. private equity activity is 53% lower than at this time last year.
State of play: The Fed typically weighs both inflation and labor market conditions when deciding rate changes. Right now it's in a holding pattern.
- Inflation has heated back up, even before tariffs go into effect, and the typical monetary response is to increase rates or keep them static.
- Hiring was strong in January, which also puts upward pressure on long-term rates.
Zoom in: The big question right now is if the labor market is actually weaker than it appears, which could be a counterintuitive silver lining for private equity if it prompts the Fed to cut.
- Treasury Secretary Scott Bessent believes it is, arguing yesterday that America's private sector is actually in a recession. He added that the White House's goal is to "re-privatize" the economy, which again should be welcome news for buyout barons.
Reality check: The trouble is that Bessent is using very fuzzy math. He told Fox News Channel on Sunday that "70, 85% of the jobs created by the Biden administration were government jobs, government-adjacent."
- In fact, only 11.1% of the jobs created under Biden were government jobs, and the vast majority of those were in local government. If you add in private education and health — the two "adjacent" sectors Bessent cites — you still only get to 33.4%.
- In fact, the percentages aren't all that different than during President Trump's first term (minus 2020, when the U.S. economy lost jobs):
The Treasury Department didn't respond to a request for comment.
The bottom line: Private equity's rocket launch is being delayed by stormclouds.
