Inflation may be increasing at a slower pace than expected, the markets might be cheering, and the Fed will likely soon be cutting, but Diane Swonk isn’t popping champagne.

The veteran economist says the  economy “looks better than it feels” because the very data used to measure it is eroding, and the illusion of resilience could shatter heading into the fourth quarter.

“The only groups that feel good about the economy now are making over $200,000 in the surveys and have large stock portfolios,” Swonk said.

September’s Consumer Price Index showed a 0.3% monthly rise and a 3% year-over-year rate, with the core index – which the Fed watches more closely than the headline – rising 0.2%. Economists had expected a slightly hotter print, calling a 0.4% monthly increase in the headline CPI and a 0.3% increase in the core rate.

Despite coming in below forecasts, inflation is still rising on an annual basis, with September’s pace accelerating from 2.9% in August. The CPI has now climbed to its highest level since January. Inflation had cooled steadily through the spring — hitting just 2.9% in May and June — before reaccelerating on higher energy costs.

Energy costs, again, were the main driver, with gasoline up at 4.1%, while food prices moderated and core inflation—excluding food and energy—slowed to 0.2%. Markets cheered the result as a sign that inflation remains contained, bolstering expectations for another quarter-point Fed rate cut at the FOMC meeting next week and another one in December.

But Swonk, chief economist at KPMG, sees something else: a slow-moving problem that’s partly statistical, partly structural and increasingly psychological.

“It’s creep instead of a surge,” she said, noting that the headline number masks persistent “stickiness” in service-sector prices and a widening split in who’s actually feeling relief.

Beneath the surface, she argues, the U.S. is running on shaky footing, both economically and in terms of the quality of the data that guides policymakers.

Swonk pointed out that many of the categories holding inflation steady are either insulated from tariffs or benefiting from temporary waivers: computers, smartphones, and some vehicle imports. Once those fade, “goods prices are still moving up,” she said, with few signs of broad-based disinflation. Core services less shelter—a metric the Fed watches closely—rose about 0.4% in September, Swonk estimated, and remains more than 3% higher than a year ago, “well above anything we saw pre-pandemic.”

That stickiness, she warns, is amplified by a bifurcated consumer base, what some economists have called the “K shaped economy.” Affluent households continue to spend freely on travel, entertainment, and premium goods, keeping service-sector inflation stubborn. Lower- and middle-income consumers, by contrast, are pushing back, trading down, stretching budgets, or delaying purchases altogether.

“Retailers are feeling that divide,” Swonk said, describing a landscape where discount chains are seeing higher-income shoppers while subprime delinquencies creep up among those who have with thinner financial cushions.

The result is a headline inflation rate that understates the pain for the median household.

“People are making tough tradeoffs in their baskets,” Swonk said. “The economy looks better on paper than it feels to the majority of Americans.”

Swonk also believes part of that gap between reality and perception stems from the government’s diminished capacity to collect and verify data. Even before the government shutdown that delayed the CPI release by nine days, the Bureau of Labor Statistics was operating with roughly 20% fewer staff than before the pandemic, Swonk said, because of DOGE budget cuts. That means that now, more than a third of price data in the CPI is imputed—estimated rather than directly observed—since fewer agents are collecting prices in person.

“We’re comparing something that’s similar in price, but it’s not apples to apples,” she said. “You just don’t have as many people in the field taking those samples.”

That means official inflation readings may be smoother than the real-world volatility consumers experience, particularly for categories where local price swings or shortages matter most, such as in beef prices.

For the Fed, that introduces a serious blind spot. Policymakers rely heavily on inflation data to calibrate rate cuts, and if the CPI is built on incomplete sampling, it risks reinforcing the perception that inflation is easing faster than it actually is.

“These are still not completely clean numbers,” Swonk cautioned. “The problem isn’t the shutdown. It’s the staffing shortages we had going into it.”

To Swonk, the slow breakdown in how we measure the economy itself is almost the bigger story than the monthly inflation. Asked if she was worried that the markets and the U.S. consumer broadly might become skeptical of the BLS, or even accuse the bureau of politicization, Swonk sighed wearily.

“Trust in the data has already been eroding for decades,” Swonk said. “Now it’s accelerating.”

Looking forward, Swonk expects the economy to slow “dramatically” in the fourth quarter, a turn she says was already coming before the shutdown drained 750,000 federal paychecks from the economy. Consumer stress, rising delinquencies, and tariff pass-throughs will all collide with a fragile labor market and weaker retail season.

“We’re going into a very difficult holiday season,” she said, noting that surveys show consumers “want cash more than anything else,” a reflection of financial anxiety rather than confidence.

The government’s tariff waivers may soften some price increases, but she expects uneven effects across sectors. Many tariff-related price pressures “are still ahead of us,” Swonk said.

This story was originally featured on Fortune.com