Why one macro expert says rates are heading down and the dollar is heading up
Interest rates. The dollar. Distressed real estate deals selling for pennies on the dollar. Macro analyst George Gammon joined Ken McElroy and Tarl Yarber for a wide-ranging conversation on where the economy goes next, and his answers were direct.
Here’s what he laid out.
Rates are going lower, especially on the short end
Gammon’s short answer on interest rates: down.
His longer answer starts with a distinction most people miss. There’s more than one interest rate. The Fed controls the overnight rate, currently around 3.5%. The 10-year Treasury, which drives mortgage rates, sits near 4.2%. And the 2-year lives somewhere in between.
Gammon is most confident about the front end of the curve, meaning the 2-year and the Fed funds rate. He thinks both are heading down over the next 6 to 12 months.
Why? The labor market is cracking. The latest jobs report expected 115,000 new jobs. It delivered 57,000. On top of that, the prior two months were revised down by a combined 74,000 jobs. Gammon expects the 57,000 figure to get revised down too, possibly close to flat or negative.
The inflation scare is probably temporary
CPI recently jumped to 4.2% after oil spiked to $120 during the Middle East conflict. Markets flipped from pricing in rate cuts to pricing in possible rate hikes.
Gammon thinks the market has it wrong.
His argument: an oil shock is different from the money-driven inflation of the 1970s. When gas prices spike but wages don’t follow, people spend more on energy and less on everything else. That drains discretionary spending, which slows the economy and eventually pulls prices back down.
He pointed to 2008 as the example. CPI rose almost 2% between March and July of that year. The European Central Bank even raised rates in July 2008, then slashed them to zero months later. Everyone remembers the deflationary ending of the financial crisis. Few remember that inflation spiked first.
His base case, assuming no new war with Iran: the next 6 months are disinflationary, and rates come down with them.
We’re in the late stage of a credit cycle
Gammon walked through 7 textbook markers of a late-stage credit cycle. In his view, the economy checks every box:
- Corporate defaults have bottomed out. Credit spreads are unusually low.
- Profit margins have plateaued. S&P 500 margins have been flat for quarters.
- Capex is exploding. AI data center spending is so large that it accounted for roughly 75% of last quarter’s 2.1% GDP growth.
The AI buildout stood out most. Google recently sold $85 billion in equity, diluting shareholders, just to keep funding data centers. Meta announced it has too much compute capacity and will start renting it out. Blackstone backed out of a massive Virginia data center deal.
Gammon compared it to the dot-com era: the internet really was the future, but valuations ran far ahead of reality. He believes AI will follow the same script. Massive long-term positive, short-term pain, especially for the labor market.
What comes after late cycle? Recession. Gammon stressed it doesn’t have to be another 2008. It could look more like 2001, a downturn that clears out bad investments and creates buying opportunities for disciplined operators.
The dollar is getting stronger, and that matters globally
On the dollar, Gammon’s call was one word: higher.
Compared to other currencies, that is. The yen recently hit its weakest level since 1986, forcing the Bank of Japan to intervene. Countries like Japan, India, and South Korea have to buy oil in dollars, so a stronger dollar hits them twice.
Gammon’s 5-year base case is a “Plaza Accord 2.0,” where global central banks coordinate to weaken the dollar, similar to what happened in the 1980s.
McElroy added a real estate angle. After 2009, when the dollar was weak, foreign investors saw U.S. property as being on sale. He raised a $300 million fund in Canada to buy Texas apartments. A stronger dollar could flip that flow in reverse.
Distress is showing up in real deals
McElroy shared a striking example from his investment committee: a 100% vacant property in San Antonio available for $8,000 a door. Five years ago, it sold for $90,000 a door.
He may still pass on it. Vacancy, capex, environmental risk, and regulatory issues can turn a cheap deal into an expensive mistake. But deals like this now cross his desk every week.
Both men agreed on the playbook for this environment: protect your balance sheet, and invest in relationships with lenders. Gammon noted that low rates usually come with tight lending, so access to capital becomes the real edge.
The bottom line
Gammon expects lower rates, a stronger dollar, more cracks in private credit, and growing distress in commercial real estate. For prepared investors with cash and good banking relationships, he sees the next stage of this cycle as the opportunity of the decade.
