New Fed Data: The Wealthy Are Splurging While the Rest of America ‘Treads Water’
A new dataset released in February 2026 by the Federal Reserve Bank of New York offers a granular look at the U.S. economy, revealing a stark divergence in consumer behavior. The data, published on the Liberty Street Economics blog, highlights how spending habits have shifted dramatically over the last three years. By leveraging real-time analytics, researchers have uncovered evidence that while the economy continues to grow, the benefits and consumption driving that growth are increasingly concentrated among the wealthy and well-educated.
The “K-Shaped” Economic Reality
The findings provide empirical support for the concept of a “K-shaped” economy. In this model, different segments of the population experience the economy in opposite directions; one group’s fortunes rise while the other’s stagnate or decline. Rajashri Chakrabarti, an economic research advisor at the New York Fed, noted that the difference in retail spending trends between demographic groups is consistent with this K-shaped narrative. While top-tier earners fuel the consumption that powers economic statistics, other groups are barely treading water.
Income Disparities: The Wealthy Spend More
The study categorizes households by income levels to track inflation-adjusted spending growth since early 2023. The data reveals that households earning $125,000 or more have boosted their spending by approximately 2.3% in real terms. In contrast, middle-income households (earning between $40,000 and $125,000) saw a more modest increase of 1.6%. Most concerning is the bottom tier; those earning less than $40,000; who managed to lift their spending by just 0.9% over the same period, indicating a near-stagnation in consumption power.
The Education Divide: Graduates vs. Non-Graduates
Education has emerged as a significant predictor of economic resilience. According to the Liberty Street Economics report, households led by college graduates have consistently outpaced non-graduates in spending. By December 2025, real retail spending for college graduates had risen by 6% relative to January 2023 levels. Conversely, spending by non-college households actually dipped below January 2023 levels for much of 2023 and 2024, only recovering recently to show a meager 4% nominal increase over three years.
Inflation’s Unequal Burden
A key driver of this divergence is the unequal impact of inflation. The data indicates that lower-income and rural households faced effectively higher inflation rates than their wealthier counterparts in late 2025. This discrepancy arises because lower-income families allocate a larger share of their budget to essential goods; such as housing, groceries, and utilities; prices for which have soared since the pandemic. Because these non-discretionary items consume most of their income, these households have little room left to contribute to broader economic growth.
Shift from Pandemic-Era Trends
The current landscape marks a sharp reversal from the immediate post-pandemic period of 2021 and 2022. During those years, lower-income households fared relatively better due to a tight labor market that forced companies to raise wages, combined with government stimulus checks. However, beginning in early 2023, that momentum faded. As hiring slowed and stimulus effects waned, the economic advantage shifted back toward wealthier households, who were better positioned to weather the changing economic tides.
The Role of Asset Prices and the Stock Market
While wage growth slowed for many, the wealthy benefited from a different economic engine: the stock market. Sharp gains in equities and asset prices have fueled a “wealth effect,” encouraging upper-income Americans to ramp up spending despite broader economic headwinds. This reliance on asset appreciation rather than wage growth helps explain why luxury consumption and discretionary spending among the rich have remained robust even as white-collar industries experienced job cuts in sectors like technology and marketing.
Future Implications for Economic Policy
The persistence of this spending gap poses challenges for monetary policy. If consumption is being driven primarily by a wealthy minority, broad interest rate adjustments might affect populations differently. For example, high interest rates might crush the purchasing power of debt-reliant lower-income households while having little impact on wealthy consumers who are spending from asset gains. Understanding these dynamics is essential for crafting policies that do not inadvertently widen the inequality gap further.
Understanding the Divergence
The latest study from the New York Fed serves as a wake-up call regarding the uneven nature of the post-pandemic recovery. While headline economic numbers may look healthy, they mask a reality where millions of Americans are “treading water” while a smaller, wealthier cohort sprints ahead. As the “K-shaped” dynamic entrenches itself, looking at the economy through the lens of heterogeneity; rather than just averages; will be vital for understanding the true health of the American consumer.
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IRS Opens Tax Filing Season Today as Trump Tax Law Promises Bigger Refunds and Changes to Your Paycheck
The Internal Revenue Service officially opened the tax filing season today, Monday, January 26, as millions of Americans file their first returns under President Donald Trump’s One, Big, Beautiful Bill; a sweeping tax law that could deliver larger refunds for many middle-income households. New deductions, expanded child tax credits, and updated IRS withholding rules ensures most filers will see bigger refund checks this spring, and future paychecks may also change as employers adjust to the new tax landscape.
Your Child Could Get $1,000 With a New Trump Account and Major U.S. Employers Pledge to Match It
JPMorgan Chase, Intel, Nvidia, IBM, Bank of America and Wells Fargo are among a growing list of major corporations pledging to match a new $1,000 government contribution to children’s investment accounts under President Donald Trump’s flagship “Trump Accounts” initiative. The announcements mark a significant expansion of private-sector participation in a program the administration says could eventually channel trillions of dollars into long-term savings for young Americans.
Your Child Could Get $1,000 With a New Trump Account and Major U.S. Employers Pledge to Match It
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John Dealbreuin came from a third world country to the US with only $1,000 not knowing anyone; guided by an immigrant dream. In 12 years, he achieved his retirement number.
He started Financial Freedom Countdown to help everyone think differently about their financial challenges and live their best lives. John resides in the San Francisco Bay Area enjoying nature trails and weight training.
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