Markets, Messaging, and the Growing Trust Deficit

Global markets are increasingly signaling skepticism—not panic, but doubt—toward the optimistic economic narrative emanating from Washington. Despite enthusiastic declarations that the U.S. economy is the strongest in history, investor behavior suggests confidence is eroding rather than strengthening.

A significant driver of this credibility gap is the persistent ambiguity surrounding trade policy. The on-again, off-again tariff rhetoric has left businesses, consumers, and markets uncertain about who is actually bearing the cost, who is exempt, and how durable any policy framework truly is. Markets can price risk. What they struggle to price is inconsistency.

That uncertainty has been compounded by highly publicized policy proposals—such as the President’s suggestion that the U.S. Treasury could purchase up to $200 billion in mortgage-backed securities—without accompanying clarity on the legal authority, timing, or implementation mechanics. When bold claims arrive without operational detail, skepticism is the rational market response.

The result has been a measurable deterioration in sentiment. Mortgage rates have climbed back toward levels last seen in September of last year. Equity markets, including a Dow Jones Industrial Average that posted more than 50 record highs over the past year, have begun to surrender ground. These are not signs of euphoria; they are symptoms of hesitation.

More broadly, the real economy is showing signs of deceleration. Regardless of political messaging, purchasing power has weakened. A dollar simply does not stretch as far as it once did, and households—like my longtime bellwether, Joe Lunch Pail—are responding in the most rational way possible: by spending less. Reduced consumer demand naturally places downward pressure on prices. This is basic economics. Demand cools, prices follow.

Some observers have interpreted easing price pressures as evidence that recent policy shifts are successfully conquering inflation. The more plausible explanation is less flattering but more honest: prices are moderating because economic momentum is slowing. Lower prices may feel like relief at the checkout line, but they are not an unambiguous positive if they are the byproduct of weakening demand.

Until financial markets regain confidence in the coherence and credibility of policy coming out of Washington, interest rates are likely to remain range-bound, drifting sideways rather than breaking meaningfully higher or lower. That prolonged rate stalemate will continue to sideline housing activity, which in turn reinforces the broader cooling trend across the economy.

In other words, the economy isn’t collapsing—but it isn’t accelerating either. And no amount of enthusiastic speechwriting can substitute for consistency, clarity, and credibility.