Experts are warning against budget cuts that would negatively impact low-income people.
New reports show Americans are cutting back on everything, looking to buy cheaper groceries and even cutting back on their vacations.
“Consumer spending has been very, very strong over the past few years, and time and time again, not just us, but other analysts have predicted that this trend would slow down. Now it may finally be happening,” Federal Reserve Chairman Jerome Powell said at a recent press conference.
Trump’s new tariffs on dozens of countries took effect on August 1, and economists have warned that they will have a direct impact on consumer prices. New federal policy research from Yale University found last week that the tariffs could cost the average household $2,400 by 2025.
The decline in American consumer spending is not happening across the board, but rather in a distributed and uneven way across different segments of society, said Claire Li, vice president of credit strategy at U.S. financial and business services firm Moody’s.
“If the pressures and benefits are not shared equally among all consumers, we will not have a healthy and balanced economic situation in the American consumer base,” she warned.
The new Moody’s ratings report shows that the working class in America, already struggling with low wages and rising housing and energy costs, is vulnerable to any increases in grocery prices and household vouchers, clothing, and furniture as a result of tariffs.
They are increasingly tapping their savings, increasing debt, and cutting discretionary spending, according to recent government data, analysts’ reports and retail executives.
Although high-income earners still retain a large share of consumer spending, the basis of this spending has been severely limited.