Why is the economy feeling so confused right now?

Hello free Sunday lunches. Disagreement is common among observers of macro and financial markets. But this year my inbox has been filled with particularly contradictory opinions and forecasts from traders, economists and analysts.

This was reflected in readers’ questions FT Ask the Expert Session With Martin Sandbo and I last week. Many inquiries focused on mixed signals in the global economy and stock markets.

So, this week, I’m going to go meta and try to explain why we’re all so confused.

Confusion appears in the data.

In the United States, the average standard deviation of GDP growth forecasts by professional forecasters for 2025 and 2026 was higher than in the pre-pandemic years, according to data compiled by Consensus Economics.

Likewise, the research conducted by BNP Paribas Fortis It appears that the divergence in expectations for economic growth in the eurozone – which typically converge as the year progresses – has actually risen this year.

Opposition among rate setters has also increased. The minutes of the US Federal Reserve’s September meeting highlighted a wide range of views on the US economic outlook. The split has been consistently high at the Bank of England over the past 18 months, according to Deutsche Bank analysis.

The turbulent macro environment is also reflected in financial markets.

The double-digit rise in stocks and gold partly indicates investors’ strong appetite for risk and Their desire for protection from unpredictability.

The VIX index, a measure of stock market volatility, tends to correlate with measures of economic uncertainty. But the two broke up this year. Such disconnects can occur, among other reasons, when uncertainty is so high that investors have difficulty pricing it in, notes Matt King, founder of Satori Insights.

So, what’s behind this confusion? There are four broad interpretations.

Data is one factor. Across advanced economies, response rates to major economic surveys have been declining in recent years.

Last March, a Financial Times poll with economists found that 90 percent of respondents had concerns about the quality of US economic data.

Currently in the United States, a government shutdown has prevented the release of national statistics, shifting market watchers’ focus toward sometimes contradictory private data sources. Katie Martin, markets columnist for the Financial Times, points out signs of this Self-censorship between economists and investors To avoid the wrath of the White House.

Second, uncertainty about global economic policy has reached record levels this year. In many developed countries, political instability and fragile public finances distort the course of fiscal and monetary policy.

President Donald Trump’s economic program – including raising the average effective US tariff rate to its highest level in 90 years, tinkering with central bank independence and dramatically reducing immigration – has little precedence.

His administration has also weaponized uncertainty around this agenda – for example through deadlines, waivers and conditions – making it more difficult to model. A clear example of this is the lack of clarity on whether the President will impose the newly threatened additional 100 percent tariffs on China. Given America’s economic heft, all this unpredictability is being felt internationally.

“It’s hard to have a base case,” says Alexander Saunders, head of global macro strategy for quantitative analysis at Citi. “The best approach in this situation is often to continue investing broadly in risky assets and wait and see.”

“In this way, a high appetite for risk can coexist with uncertainty,” he adds.

Third, the global economy is facing structural changes that are not easy to price. Changing geopolitical trends and trade patterns are one such factor. What is even more important now are efforts to measure the transformative potential of AI.

“There is a divide between those who think AI is just a bubble, and those who think it is just bliss,” notes Jonas Goltermann, deputy chief markets economist at Capital Economics.

In the United States, adoption rates of AI in business appear to have declined in recent months, especially within large companies. This mirrors what happened recently at MIT He studies It found that 95% of companies did not achieve any gains from their investments in artificial intelligence. However, a growing number of companies still expect to increase their use of technology in the near future.

The disconnect between the limited short-term effects of Trump’s paradigm-shifting policies and their high long-term economic effects adds to the confusion. Indeed, the impact of high and low tariffs Supply of foreign workers On the potential for increased growth over time.

“The narrative rate is high right now,” says Ed El-Husseini, fixed-income portfolio manager at Columbia Threadneedle Investments. “Recession fears, AI hype, and America’s safe haven status are constantly coming and going.”

These three factors feed into a fourth driver of aggregate confusion: so-called K-shaped trends. They describe the extent to which positive economic drivers (the upward movement of the K) spread while counterbalancing negative drivers (the downward movement).

“There are a lot of disparate or K-shaped themes going on within the economy and the market,” says Liz Ann Saunders, chief investment strategist at Charles Schwab. “This makes simple narratives more vulnerable to errors of judgment.”

These are most evident in the United States. I have outlined some cases in September 7 edition From this newsletter: Prosperous vs. Distressed Nations, AI Capital Spending vs. Non-AI Spending, and Spending by High-Income Households vs. Low-Income Households.

Another example is how negative tariff shocks to the S&P 500 were offset by upbeat non-tariff news, including excitement around artificial intelligence and strong earnings reports.

During Thursday’s question-and-answer session, many wondered how US economic activity remained buoyant despite weakness in the labor market, which usually triggers recession warnings. Part of the answer lies in the counterproductive effects of capital spending on infrastructure associated with AI.

Likewise, some point to the decline in immigration as a sign that lower job growth in the United States may be driven by supply rather than demand, and therefore less worrying, notes Golterman of Capital Economics.

These K-shaped dynamics make it difficult to determine net effects, which leads to uncertainty at the macroeconomic level. But it also means that discussions have become more polarized.

Sometimes confusion is created by focusing on the wrong statistic. Many point to the limited rise in core inflation measures to suggest that Trump’s tariffs have little impact on prices. But these aggregate indicators mask clear price pressures in import-dependent goods.

The end result is confusion. Economists and investors, depending on their point of view, can look at the same economy and arrive at a wide range of viewpoints.

The US economy appears resilient and fragile, Trump’s policy agenda seems both dysfunctional and strangely irrelevant, and markets feel euphoric but unstable. So, Schrödinger economics (since all observations can be true simultaneously).

In such an environment, having strong convictions can be costly. Wading through the chaos of total narratives requires us to dig deeper into broader data sources, question our precedents, and accept that some inconsistencies can reveal the truth.

Send your ideas to [email protected] Or on X @TEAPPERIKH90.

Food for thought

this Editorial from nature It calls for an end to “GDP mania” and outlines what a better measure of prosperity might entail.

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Free Sunday Lunch is edited by Harvey Nriapia