"For higher earners, economic outcomes and opportunities are chugging along, albeit perhaps a bit muted than during the boom labor market of a few years ago. For those at the bottom, in lower-earning positions that are traditionally more sensitive to downturns, things are looking worse. It might also spell rocky times ahead for an economy that's largely being propped up by the spending and opportunities of those at the top."
"The return to a K-shaped economy has caught the attention of the Federal Reserve and its voting members. In minutes from the December Fed meeting, a majority of participants "mentioned evidence of stronger spending growth for higher-income households," while lower-earning households were becoming "increasingly price sensitive" and adjusting their spending in response to price increases for essentials. At a December press conference, Federal Reserve Chair Jerome Powell said he's not sure how long this can last."
Income and spending patterns are diverging into a K-shaped recovery, with higher earners experiencing steadier opportunities and stronger spending while lower-income households face cooling prospects. Lower-earning households are increasingly price sensitive and are reducing spending on essentials in response to price increases. Federal Reserve participants noted stronger spending growth among higher-income households and expressed concern about sustainability of demand concentrated at the top. Bank of America data showed a split in credit and debit card spending between income groups. Economists warn that reliance on top-tier spending could undermine broader economic stability and contribute to trouble in 2026.
Read at Business Insider
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