The U.S. economy is growing. Consumer sentiment hit an all-time low this month. Both of those things are true at once, and the Federal Reserve Bank of New York just explained why.
The top half of the K is doing fine, as high earners own stocks and homes, and both keep gaining value. The bottom half is a different story.
Lower- and middle-income households put more of their paychecks toward housing, food, and utilities. Those are the categories where prices have run hottest since the pandemic. So when inflation stays high, those families cut groceries first before they cut rent or power.
The NY Fed researchers called it "a remarkable increase in food insecurity."
About 14% of American households were food insecure in 2024, per the USDA's most recent report. That number gets worse, the Fed said, after the expiration of pandemic-era expanded SNAP benefits. SNAP is the Supplemental Nutrition Assistance Program, formerly known as food stamps.
New work requirements were tightened under Trump's "big beautiful bill" earlier this year. Those rules cut the number of households that can qualify for aid.
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Stock and home gains lift the top of the K. Gas prices weigh on the bottom.
The national average hit $4.46 a gallon Wednesday, up about 40% from a year ago, according to AAA. That hits the bottom prong of the K harder because lower-income households spend a bigger share of their income on fuel.
University of Michigan consumer sentiment hit an all-time low in May. About one in three households told the New York Fed they expect to be in a worse financial spot a year from now.
"Consumers overall have been pessimistic about their own financial circumstances and outlook," the researchers wrote.
The data points the Fed is highlighting - food insecurity, falling confidence, rising gas prices - usually show up in spending well before they show up in headline GDP numbers. That's what makes this report different from a standard inflation note.
A coming rate move from the Fed could widen the gap further, since higher rates lift returns on assets the top of the K already owns.
The economy is expanding. A big chunk of it isn't.
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