The last time Peter Linneman, economist and former professor at the Wharton School of the University of Pennsylvania, joined the Walker Webcast, he predicted the Fed would oversee interest rate cuts by at least 50 basis points by year-end.

However, at its most recent meeting in September, the Federal Reserve raised interest rates by 25 basis points to curb inflation.  

On this week’s webcast, hosted by Willy Walker, CEO of Walker & Dunlop, Linneman wasn’t entirely convinced that these elevated rates are here to stay. 

“I don't see [interest rates] going up,” he said. “They're at a 25-year high. Let's take a look at inflation. We had kind of stabilized [after the pandemic], but we then had the oil situation. When oil prices go up, you get a higher inflation rate. It’s due to mathematics. But it doesn't stay inflated.”

Linneman argued that though recent oil price volatility has spurred inflation, that pressure will likely ease at some point in the future, even if prices remain elevated. This will eventually prompt the Fed to take action and lower interest rates.

“Even if oil stays up, it will become noninflationary,” he said. “What do I think happens when it stops being inflationary? The Fed will at some point lower the rate.”

As for the labor market, Linneman’s most recent quarterly newsletter, The Linneman Letter, put the unemployment rate at nearly two times the official unemployment numbers. This is mainly because unemployment surveys do not account for the unemployed who aren’t actively looking for jobs, Linneman said.

“That segment of the population is still fairly high, and it's a bit abnormally high,” he said. “I don't think anyone, including me, fully understands why it's as high as it is, but it is, and it's a drag on the economy.”

In one regard, the labor market is still very strong overall, Linneman said. Relatively few people are filing for unemployment. But when looking at the amount of new jobs created, the data appears to be telling a different story. 

In recent years, the creation of new jobs has followed a downward trend, with the economy only adding about 181,000 in 2025 — compared to the 1.46 million jobs of 2024. But if people simultaneously aren’t losing their jobs, what’s going on?

Linneman noted that annual legal and illegal immigration to the United States is down by 2 million to two and a half million people. 

“If you say half of those would have gotten a job, which is not wildly off, that would have been another million workers,” he said. “People say immigrants come in and destroy and take away opportunity. What they forget is they also get jobs, and they do what everybody else does when they get a job. They add to the U.S. economy's productivity.”

Linneman also raised some concern about the rapid pace at which the data center market is expanding across the country. 

It’s expected that the five biggest hyperscalers in the U.S. will invest upward of $600B in data center construction to keep up with demand for artificial intelligence. Tech companies, he said, are afraid that they’ll go out of business or lose the “AI race.” So afraid, in fact, that they may be taking on unprecedented risk just to have a seat at the table.

The same thing goes for lenders in this space. Linneman said lenders are sometimes willing to provide 85% to 90% first mortgages for data center projects, which is abnormally aggressive. He argued that lenders are treating data center clients as virtually risk-free, which is unusual.

“We see tenants doing something we don't normally see,” he said. “We're seeing lenders do it, and then we see equity providers saying, ‘I got crushed in real estate in the last three and a half years on everything else, let me try data centers, especially with 90% leverage’ … I think it will get overdeveloped in a strange way.”

His point? If the tenants are worried about the threat of obsolescence, why doesn't the rest of the capital stack share this same sentiment?

“I'm not anti-AI,” he said. “It just seems like too much too soon.”

In the multifamily sector, Linneman said owners could see significant rent growth in 2027, but perhaps not in the way many are thinking.

Instead of owners raising asking rents on paper, the trend suggests that rent growth will be due to the elimination of concessions. 

“Let me be clear,” he said. “I don't think you're going to see 10% face rent increases in the first half of 2027, but I do think you're going to see a month or two of concessions fall by the wayside as things lease,” Linneman said. “That would be huge.”

But Linneman’s biggest concern as 2026 comes to an end is the Fed. 

He said he is not typically afraid of the moves the Fed makes because he has expected “so little” from it over the years — a sentiment that does not only pertain to this administration. But right now, he said, it's “dangerous.” 

“I think they're going the wrong way, and it's just really obvious it's the wrong way, and there's going to be a lag,” Linneman said. “It's not going to take effect instantly, but the Fed worries me much more than normal.”

On a positive note, Linneman said the U.S. economy is resilient, even in the face of geopolitical turmoil and a “dangerous” Fed. 

In the past several years alone, the U.S. economy has “shrugged off” the Russo-Ukrainian war, the Gaza-Israel conflict and, most recently, the Iran war. In a way, the U.S. economy is like the fictional character Jack Reacher — you can hurt it, but you can’t kill it. 

“[Jack Reacher] gets hit in the head with a pipe, and you think, well, that's the end of Jack Reacher,” Linneman said. “But two minutes later, he's dealing justice, and then he gets stabbed five minutes later, but six minutes after that, he's dealing justice. That's the U.S. economy. You can damage it, but it's like Jack Reacher: It just keeps getting up.”

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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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