Peter Linneman On The Fed, Consumers And Why CRE Is In 'No-Man's Land'

When Walker & Dunlop CEO Willy Walker and Peter Linneman met on the Walker Webcast last October to discuss Linneman’s predictions for the U.S. economy, the direction of where it was headed was a little cloudy. 

On this week’s webcast, Linneman, economist and former professor at the Wharton School of the University of Pennsylvania, said the numbers started to become clearer in December. 

During the holiday season, consumer spending rose 6.4% from the year prior. Although they weren’t the highest spending numbers in history, Linneman said consumer spending and confidence surpassed his expectations.

“What worried me [last time] is we weren't seeing official data, and I worried that we would see really bad retail results,” Linneman said. “People are shopping because they feel relatively good, and that improved my attitude a lot.”

Linneman said unemployment rates have shown signs of stability and jobless claims are ticking down. While this is seen as a positive, hiring isn’t on par with where many would like to see it. The reason for this is far from one-dimensional.

“We're not hiring a lot of people because we don't have as many immigrants coming in to be hired,” he said. “That's not the only reason, but that's one of the reasons.”

The other reason the U.S. at-large is experiencing slow hiring is uncertainty still pervades the economy, he said. Concerns over what is happening in the Middle East, President Donald Trump’s tariff policies and the longest government shutdown on record have shaken the markets. Companies are growing, albeit at a slow pace to avoid getting ahead of themselves. This cautious attitude is sustainable in the short term but not forever, he said. 

“You can do this for a while, of course,” Linneman said. “Can you do it forever? No. The beatings will continue until morale improves. You're going to start seeing employment improve, though, absent an inflow of immigrants.”

Walker and Linneman then touched upon interest rates, the topic at the forefront of everyone’s minds. 

Linneman said interest rate cuts are coming in 2026 — far more substantial than what many people are expecting. 

A 50 basis-point cut is necessary to make the market “neutral,” he said. This, however, may happen over one cut or a series of cuts. How that will be done remains to be seen, but Linneman said the Federal Reserve likely isn’t going to cut “in a hurry.”

“I would not be surprised at all if this year we get 75 to 100 basis-point cuts,” he said. “That would be a big stimulus to manufacturing, auto and things like that. You'll get a spurt of growth from that because it's been three years since we’ve seen growth in manufacturing.”

Walker said that when Federal Reserve Chair Jerome Powell ends his tenure in May, whoever the president selects for the position will likely be aligned with the president’s desire to cut rates aggressively. 

Based on precedent, it’s unlikely a new appointee will begin their tenure with drastic cuts, Linneman said.  

“I don't think a new chairman walks in and says, 'OK, let's do 75 basis points in a month,’” he said. “Culturally, they’re not going to do that. They're going to bleed out those raises over six, seven or eight months. So, yes, a new chair will want to do that. But, no, they won't be able to do that.”

While the economy seems to be faring well overall, Walker said commercial real estate, in almost all asset classes, is still lagging.  

He said data in the latest edition of The Linneman Letter shows office and multifamily values are down by 30% from pre-pandemic days and retail and hospitality are down by 20%. 

Given these figures, Walker asked when some of these asset classes can start to see rent and value growth. Put simply, when will the market start to get to the next cycle in commercial real estate? 

Right now, it feels like “we’re in no-man’s land,” Walker said. 

“There's the rent and occupancy, and then there's the capital flows,” Linneman said. “Everybody focuses on demand, which has been pretty good for multifamily, and even for offices it's picked up. What has been the problem is too much supply. It takes those spurts of supply a while to burn off.”

When it comes to one of the industry’s hottest asset classes, data centers, Linneman remains skeptical of its long-term growth. 

The billions of dollars invested in artificial intelligence and the creation of data centers should keep investors and developers safe for the next two to three years. After that, the picture becomes blurry, he said.  

“So much money has already been committed that just getting that through the system is creating huge margins for everything related to it for several years,” Linneman said. “But anytime I’ve seen huge margins in an area, it gets overbuilt and oversupplied.”

Trump’s tariffs, on the other hand, are still a risk factor in 2026, Linneman said. 

The reason is twofold. The first is any tax increase hurts the economy in terms of growth. While some may view tariffs only as a net positive because they generate tax revenue, by that logic, Linneman said, why not put a 100% tax on everything? Nothing would get produced. 

The second is there’s no certainty surrounding these tariffs, he said. 

“Certainty is what business thrives on,” Linneman said. “Certainty is what people thrive on. People are more comfortable in daylight than in the dark. Businesses are more comfortable when they can see clearly than when they can't. This is slowing the economy.”

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This article was produced in collaboration between Walker & Dunlop and Studio B. Bisnow news staff was not involved in the production of this content.

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