Peter Linneman On S&P 500 Predictions, Trump’s Tariffs, Potential Interest Rate Cuts

If all the “fluster and bluster” regarding President Trump’s sweeping tariffs announcement were to lead to a systematic reduction in global tariffs, that would be a “win-win,” said Peter Linneman, economist and former professor at the Wharton School of the University of Pennsylvania, on this week’s Walker Webcast, hosted by Walker & Dunlop CEO Willy Walker.

In the president's ideal situation, other countries would lower their tariffs to essentially zero, and then the U.S. would reduce theirs. However, this has yet to transpire. As a result, the U.S. is in a “lose-lose” situation right now, Linneman said. 

“I don't know what probability to put on that,” Linneman said. “We've just never seen anybody rattle the cage this much.”

This week’s webcast was recorded from the event stage of the YPO Real Estate Multi-Family Symposium in Chicago. Eager for the input of some of today’s leading commercial real estate experts, Walker asked the audience where they think the country’s economy is heading. The overwhelming majority raised their hands in favor of “everything is not where we need to be going, but we’re going to be fine.” 

Linneman concurred with the sentiment of the audience — “more or less.”

“We're doing some things that are good, we're doing some things that are stupid,” he said. “We do some things well, and then we find a way to get in our way and do some negatives that knock us down a peg or two.”

The U.S. economy was valued at $30T last year, with imports accounting for $3T, or 10%, of the economy. Any situation where taxes are raised substantially on a significant part of the economy is not going to be good, he said. 

“It looked like it was going to be about a 3% increase in tariffs from about $2 to $3 per $100 of imports to $5 to $6 of tariffs on $100 worth of imports,” he said. “Right now, we’re closer to $20 of tariffs on $100 we import, on average. That’s obviously a lot bigger.”

He said this math suggests that prices on average are going to go up 1.2% more than they would have otherwise. But once they've risen, they won't keep inflating unless tariffs keep growing larger. Essentially, there’s a one-time shock to inflation in excess of one percentage point. In subsequent years, tariffs may even have a modestly deflationary impact. 

“Why modest? Because if you're caught in a big thunderstorm, do you just stand there? No, you get out of the thunderstorm. You try to get an umbrella, you get in a car, you get under an awning to minimize the damage. As we minimize the damage, the average tariff will go down from 20, even if no individual tariff is changed. The effective impact will diminish over time.” 

Linneman added that the Federal Reserve is now switching its motive to cut interest rates from combatting inflation, which “seems to be the rearview mirror” to supporting economic growth, as the sweeping tariffs are expected to negatively impact GDP by about 1.7%. 

However, he said the Fed may be motivated to cut interest rates to counteract the potential economic damage imposed by the president’s tariffs — metaphorically giving Trump “the finger.”

“The interesting thing is [Trump] will be happy when they cut the interest rate, because he's been saying that for some time,” he said. “A true cynic would say this is all a way to get the Fed to cut the interest rate.”

Walker added that the CRE industry should be excited that the country’s secretary of the treasury, Scott Bessent, is so focused on getting the 10-year Treasury rate down this year. 

“We actually have a treasury secretary — no criticism of anyone in the past, just focusing on the current — that actually understands the capital markets and understands the fact that we have a huge amount of country debt that needs to be refinanced, and that he wants to do that in a way that is most economically advantageous to us,” Walker said.

Linneman also is steadfast in his prediction that the S&P 500 will maintain a moderate increase by year-end — even if not as much as he originally predicted. Earlier this year in his quarterly newsletter, Linneman predicted that the S&P 500 would grow by 7% to 9% by the end of 2025. The index is currently down 8% year-to-date. 

“Most of what I think it's down on is confusion,” he said. “By the way, I'm confused, you're confused. Confusion raises the risk premium. I think, as time goes by, the confusion will go down. That may or may not mean we like the policies, but the confusion factor will go down.”

He said the biggest focus right now for CRE should be to home in on the fundamentals and “turn down the noise” every day. 

“Everybody should wake up and leave the fright house. A fright house is fun for two hours before Halloween, but you can't stay in there all the time. It jangles you. It disorients you. Imagine if you were in one of those fright houses endlessly and if all you watched were horror movies, you'd be a wreck. Leave the fright house. Tune down the noise.” 

As for whether the U.S. will sink into a recession this year, he said he doesn’t see it happening any time soon. He predicts the economy could slow, however, if the administration keeps taxes “that high” on 10% of the economy. 

“Say what you will, but GDP was pretty strong in the first quarter,” he said. “Say what you will, but employment was pretty strong in the first quarter. We're only a few weeks past the first quarter. Say what you will, but unemployment insurance claims last week were very solid. And I could go on.”

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

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