Sternlicht Predicts Economy 'Will Weaken,' Powell Will Lower Rates

Starwood Capital Group CEO Barry Sternlicht on Friday made a new forecast about a looming economic downturn and how it could affect real estate. 

Sternlicht, speaking on an earnings call for Starwood Property Trust, predicted more economic weakening due to the impacts of tariffs and rising costs. He cited evidence of reduced travel as a sign of a potential downturn.

“The markets have recovered, shockingly, to pre-Liberation Day highs, but that doesn’t really feel right,” Sternlicht said, according to a Seeking Alpha transcript. “Things like travel are clearly off.”

Earlier this week, the Federal Reserve decided against cutting interest rates further, resisting pressure from the Trump administration. The Fed also warned that economic indicators could worsen due to President Donald Trump's tariffs and uncertainty across the business sector.

Fed Chair Jerome Powell said that he wanted to wait and see what would happen to unemployment and inflation before changing rates.  

Sternlicht said he expects that due to a weakened economy, interest rates will be lowered either with or without Powell as chair.

“The economy will weaken, and that means Powell, sooner or later, will lower rates,” Sternlicht said. "For sure, when he's out in May of '26, there's no chance rates will be higher because the selection will depend on somebody who accommodates a lower rate environment.”

Sternlicht said interest rate cuts could lead to a bounce back for the commercial real estate market.

“That is all good for the property segment,” he said. “And so I feel like we're through the worst of it, and it's going to get better from here, and transaction volumes, which kind of have slowed ... I expect that will reaccelerate.”

“We will come back into favor, and we'll probably have more people on this phone call in the future,” he added.

Starwood Capital Group reported total revenue of $418M last quarter, down from $454M from the previous quarter. The company closed on $1.3B in investments last quarter, including $900M in commercial lending.

Sternlicht said he sees concerning signs around international travel, with some of the country's nearest neighbors, including Canada, looking for alternative travel destinations like Europe or the Caribbean.

The hospitality sector is bracing for slower-than-expected summer travel this year. One of the largest hotel REITs, Host Hotels & Resorts, reduced its revenue forecast last week due to expected impacts from an economic slowdown.