Economists Revise Inflation Predictions for Trump’s Second Term Article originally posted on Globe St. on January 8, 2025 Since before the U.S. presidential election in November, there has been speculation about how Donald Trump’s announced policies might affect inflation and, as a byproduct, interest rates. Now some big names in economics are saying that the impacts on inflation wouldn’t be as extreme as was predicted. Others remain wary and even if inflation isn’t kicked into overdrive, commercial real estate could face a problem in the form of the 10-year Treasury. Right before the election, the consensus among economists and analysts seemed to be that Trump’s preferences — high growth, tariffs, tax cuts, and immigration — would lead to increased deficit spending and inflation. So would have Harris’s policies, only not as much. “Given how much supply of new debt is hitting the market, the question is where the buyer base would come from,” Ali Meli, founder, chief investment officer, and managing partner of Monachil Capital Partners told GlobeSt.com. “Moves in the 10-year yields will be significant drivers of real estate valuations and cap rates. We expect higher long-term government yields to put downward pressure on valuations.” Some opinions have changed over the last few months. “[Trump] originally proposed a 10% across-the-board tariff, plus a 60% tariff on China,” Jason Furman, professor of economics at Harvard and head of the Council of Economic Advisors under President Obama, told Bill Kristol in early October 2024. “That met a lot of criticism. For example, raising costs for a middle class family by $1,700, even more on a percentage basis for low and moderate income households, and hurting growth, raising inflation, etc.” Nevertheless, Trump is also unpredictable. “He changes his mind on lots and lots of things,” Furman said. “And there’s one Trump of responsible advisors who doesn’t do anything he says on the campaign and things turn out basically fine. There’s another Trump who does follow through on everything he said in the campaign, and that could be a pretty large downside for growth and a large downside in terms of higher inflation.” Now Furman and others speaking at the recent American Economic Association conference in San Francisco, have reconsidered earlier opinions, at least to some degree. Furman thinks that if implemented as Trump has said, the president-elect’s policies would have a “relatively small” effect on inflation. The economist did note that even a few tenths of a percent added to 2.4% inflation could put Fed rate cuts on hold for the year and possibly result in some rate hikes if price pressure didn’t reduce. Former Fed Chair and advisor to the second Bush administration Ben Bernanke said, “Trump policies, whatever their merits on public finance grounds, probably will be modest in terms of their effect on the inflation rate.” “In terms of the overall macro economy … you won’t see a drastic change or things that are terribly frightening,” said Christina Romer, an economics professor at the University of California, Berkeley, and a former Obama administration adviser. However, inflation isn’t the only consideration. Rising yields and falling prices in the 10-year Treasury have sparked concerns in the CRE industry. The yield topped 4.7% in intraday trading today, though that isn’t proof yields will continue to go higher. The 10-year is a common measure of longer-term risk-free rates, with risk premiums added to determine CRE mortgage rates. Some experts do think the 10-year will continue to climb. Peter Tchir, head of macro strategy at Academy Securities, has raised his near-term expectation of the 10-year yield to 4.75%. President of Bianco Research Jim Bianco has forecast a 5.23% average on the 10-year yield. Mizuho Securities U.S. Chief Economist Steven Ricchiuto in November 2024 thought there was a good argument for a 5% yield on the 10-year. Carol Ng, managing director of Derivative Logic, told GlobeSt.com that at least in the short-term, yields are probably on their way up. “The 10-year treasury yield equals growth plus inflation, and I am seeing both potentially going higher with the new administration and the incoming policies,” she says. “Hopefully, it is more growth than inflation, but we will have to see how it all shakes out.”