The Fed’s latest report describes a widening gap between America’s social classes, with “early signs of strain on middle-income consumers.”
On the lower end, households are cutting back on dining out, trading down to cheaper groceries, getting “sticker shock” from car prices, and responding more sharply to price increases. Retailers across several Fed districts noted that budget-conscious shoppers have become increasingly sensitive to small changes in prices or promotions. Fast-food chains also saw a “notable decline in sales” as lower-income diners pulled back.
At the top of the income distribution, the picture looks very different. High-income households — those who benefit most directly from asset appreciation — continue to spend robustly. Travel bookings remain strong, discretionary purchases are holding up, and “higher-end retail spending remained resilient.”
“What’s more worrying about the AI bubble,” Edwards said, “is how much more dependent the economy is on this theme, not just for the business investments, which is driving growth,” but also the fact that consumption growth is being dominated so much by the wealthiest cohort. He added that the wealth of this cohort, “inflated by the stock market,” is a major concern and in the case of a big stock-market correction, this wealth and therefore the economy would be “hit very, very badly indeed.”
In multiple districts, Fed contacts reported to the Beige Book a noticeable sense of caution around that boom. Manufacturers described the moment as a “collective holding of breath,” worried that AI spending might be running ahead of underlying demand.
