Macro Context — A Country Still Angry at Prices Even as Inflation Eases
Inflation has cooled, but the emotional residue hasn’t.
Price levels remain high even if increases are slowing
Consumers feel the cumulative impact of years of elevated inflation — especially in food, rent, insurance, and services.Sentiment is highly political
Surveys show partisan splits in how respondents perceive economic conditions, regardless of measurable trends.Real wages have improved but unevenly
Gains are concentrated in lower-wage sectors, while middle-income households still feel behind.Housing and insurance distort perception
Shelter costs and insurance premiums remain the stickiest drivers of consumer frustration.The disconnect between macro data and household emotion is widening
This split is becoming one of the defining features of the 2025–2026 economic landscape.
The economy may be stabilizing — but voters aren’t feeling it yet.
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Current Dynamics — Spending Is Holding Up, But Confidence Isn’t
Spending remains resilient
Households continue to spend on travel, dining, and entertainment despite low sentiment scores.Inflation expectations are easing
Consumers are pricing in a return to “normal” inflation — a positive sign for the Fed.High-frequency data shows confidence stabilizing
While low, sentiment isn’t falling further. The bottom may be forming.Income expectations are improving
Wage growth remains solid, especially in service sectors facing ongoing labor shortages.Households remain sensitive to interest rates
Mortgage rates, auto loans, and credit card balances keep sentiment suppressed even as inflation cools.
Consumers don’t need to feel good — they just need to stop feeling worse.
Investor Bearings — How This Emotional-Macro Split Matters for Markets
• Disinflation supports the Fed’s 2026 cut narrative
Lower inflation expectations help anchor policy even if sentiment remains soft.
• Retail strength risks delaying easing
If spending proves too resilient, the Fed may hesitate to cut, fearing renewed inflation.
• Election-year dynamics intensify narrative volatility
Markets must brace for headline-driven swings in sentiment data.
• Sectors sensitive to consumer psychology diverge
Staples benefit from “value-seeking” behavior; travel and leisure remain momentum-driven.
• The sentiment gap creates mispricing opportunities
Equity markets may underestimate the upside potential if sentiment catches up to fundamentals.
The key risk isn't that consumers are unhappy.
It’s that markets misinterpret what that unhappiness actually means.
Closing Takeaway (Strategic Lens)
Sentiment is stuck in the past; inflation expectations are looking forward.
The economy is healing — slowly — and the real question is whether the consumer mood can shift in time to influence 2026 spending, policy, and politics.
