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lite.cnn.com - on gopher - inofficial
ARTICLE VIEW:
The Fed just cut rates. But relief might not come quickly enough for
some Americans
By Alicia Wallace, CNN
Updated:
12:27 PM EDT, Thu September 18, 2025
Source: CNN
The Federal Reserve for the first time this year, a move that could
provide some relief for Americans from the higher cost of living. But
there is a deepening inequality among households in the United States.
Consumer spending, which is a crucial part of the US economy,
accounting for about two-thirds of its growth remains robust: , a month
when spending was expected to be somewhat lackluster.
But a closer look reveals that the economy is now ,” with a small
share of high-wealth Americans seeing continued gains, while a larger
share of middle- and lower-income households is experiencing increased
strain.
“The economy’s prospects are tethered to the fortunes and spending
of the well-to-do,” Mark Zandi, chief economist at Moody’s
Analytics, told CNN. “Those in the top 20% of the income
distribution are driving the economic train.”
And that gap is widening to a historic extent, Moody’s Analytics data
shows. As of June 30, the top 20% of earners (those who make about
$264,500 a year) accounted for more than 63% of all spending, and the
top 10% (those who earn more than $353,000 a year) accounted for more
than 49% — both the highest on record, according to data that goes
back to 1989. In 2019, during the comparable period, those shares were
59.2% and 44.6%, respectively.
“If [the top-earners] turn more cautious in their spending, for
whatever reason, the economy will suffer a recession,” Zandi said.
That could happen if there were a significant correction in stock
prices, he said, since much of the wealth that fuels spending by those
“well-to-do” individuals is tied to the robust financial markets.
Hoping for the best
The wealthiest households accounting for an even greater share of US
spending growth is causing upward pressure on inflation and spurring
speculative bets that could foment . That could make the United States
more vulnerable to a potential recession in the process, but it also
risks setting back some Americans for years to come, economists tell
CNN.
“The business cycle is always super depressing when we think about
the different parts of the income distribution, because the lowest
decile … in every single recession, they fall further and further
behind,” said Tyler Schipper, an associate professor of economics and
data analytics at the University of St. Thomas, in St. Paul, Minnesota.
The widening spending inequality is happening at a time when the US
economy is slowing, inflation is heating up and the .
For some people, like Minnesota resident Calyssa Hall, money is tight,
and especially so since the pandemic.
“It’s been hard to bounce back totally,” Hall told CNN. “But we
are believing that all the good things are coming. I truly believe that
I’m going to get back to the point of abundance and non-panic — not
spending like crazy but just being able to go and not worry about
money.”
The rising cost of living was top of mind as Hall and her friend
visited the Minnesota State Fair in August. A venture that used to
include purchases of artisan-made goods and a selection of different
tastes and eats has been whittled down to a couple of food items.
To be fair, most state fair items have become much pricier over the
past year. According to a price index (the fittingly named On-The-Stick
Index) developed by economist Schipper and his University of St. Thomas
students, fair prices rose by 7.7% from the year before — more than
double overall inflation.
When tracking prices at the Minnesota State Fair this year, Schipper
noticed that attendance was below average despite incredibly favorable
weather. He attributed that to the fact that “consumer sentiment is
lower, and the State Fair tends to be a place where you’re maybe not
as cost-conscious.” One way to avoid paying higher prices is that
some “just don’t go to the fair at all,” he said.
Spending power being sapped away
President Donald Trump’s widespread and steep tariffs on US imports ,
business investment and hiring, said Justin Begley, an economist at
Moody’s Analytics.
Still, on an aggregate basis, US households appear to be managing their
debt and delinquencies haven’t escalated to concerning levels,
Moody’s Analytics’ US Household Debt report for August showed.
However, for lower- and middle-income households, that credit picture
is looking less stable, according to a Moody’s Analytics analysis of
delinquencies by credit score (which is the closest proxy for income).
While overall delinquency rates are hovering around their pre-pandemic
levels, the percentage of balances 30 days or more past due for
households with sub-660 credit scores rose to 9.06% in July, the
highest share since February 2016. In August, that delinquency rate
dipped down to 8.77%.
Additionally, at the fastest pace since the Great Recession, according
to new data released this week by credit scoring company FICO.
Overall wage growth is slowing, and the pandemic era trends where pay
gains were faster for lower-income workers have reversed themselves and
are now faster for higher earners.
And new analysis released Thursday morning by Oxfam suggests that the
highest-earning Americans — the 0.1% — are expected to heavily
benefit (to the tune of $60.3 billion) from the recently passed US tax
law. Oxfam estimates that the corporate tax provisions in the bill
could boost the top 1% of earners by $2 trillion.
At the same time, price stressors have been particularly acute for low-
and middle-income households, Schipper said.
“Economists have long said that tariffs are regressive; they function
as a consumption tax, and consumption taxes are more stressful for
households that are spending more of their budgets on goods and
services,” he said. “We’re also seeing middle-income households
actually shopping at places like dollar stores and Walmart.”
In Fishers, Indiana, Scott Goodwin’s family recently started buying
groceries at a different store.
“We’ve changed grocery stores from the more, I hate to say, one of
the more nice grocery stores to shop at locally; we used to go there
for five to 10 years,” he told CNN. “And now, we went to another
chain. My wife thought we can save more money by going to another
store, so we’re doing that.”
The Goodwins have long taken a conservative approach to spending —
they typically don’t take trips, and instead they use the money to
take care of bills, including student loan payments.
“The economy is always changing, it’s changing now. Do I have as
much spending power today as I did five years ago? Probably not,” he
said. “We’re conscious of that. My wife and I pull back when we
need to.”
But recently, they’ve pulled back more on what they spend on food and
leisure, including cutting out concerts this year.
“Is that because I’m sick, or is that because of the economy? It
could be a combination of both,” said Goodwin, who was born with
polycystic kidney disease, a rare genetic disease that has now
progressed to Stage 5, or kidney failure.
More medical costs are on the horizon for Goodwin, as he’ll start
dialysis soon and desperately hopes for a transplant.
“There’s a lot looming for me, medical bills being one of them,”
he said.
A quarter-point drop in the bucket
, in part because of tariff-related effects but also higher services
prices, particularly for travel-related sectors.
“Affluent households are still willing to pay for the front of the
bus, and they’re also willing to pay up, while a lot of households
are curbing their discretionary spending,” Diane Swonk, chief
economist at KPMG, told CNN. “You have this pocket of affluent
consumers holding up service sector inflation in a way that you
wouldn’t normally have.”
Plus, the widening gap is making overall spending weaker, she said.
“Inequality is also important, because lower- and middle-income
households, any dollar they earn or that’s put in their pocket,
they’re more likely to spend than a high-income household,” she
said. “When you have higher inequality, overall consumer spending is
weaker as well. And so, it’s not just a bifurcation, it actually
dampens overall spending and inequality.”
She added: “It’s like the worst of all worlds, in some ways, for
the [Federal Reserve].”
On Wednesday, the , lowering its benchmark interest rate by a quarter
point. Monetary policy acts with a lag, and the size of the cut isn’t
expected to be a salve for the K-shaped economy-related ills. However,
it could bring some relief to certain households, Schipper said.
“I think a household that’s struggling with credit card debt and is
actively trying to get rid of it — every little bit helps,” he
said. “There will be some households, potentially, that it might make
sense within the next six months to refinance their mortgages, and that
can be a big help.”
But it’s likely not generating huge sighs of relief that the worst is
over, he said.
“It’s just a little bit less of a struggle,” he said.
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