Fed Chair Jerome Powell acknowledged Wednesday that the soaring stock market is helping support consumer spending — and the overall economy — right now.
If the market goes down, Powell said, it could hurt consumer spending. But spending wouldn’t take a large hit unless the market plunged.
“I think it’s certainly a factor supporting consumption right now,” Powell said in response to a question asked by Yahoo Finance about how much of consumer spending and the economy hinges on the stock market remaining strong.
The question gets at how prominent a role the stock market is playing in supporting spending and the overall economy.
Powell and others have noted the US is in a “bifurcated economy”: Lower-income individuals are pulling back on spending, while wealthy individuals benefiting from market run-ups continue to drive spending — perhaps keeping the economy afloat.
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According to a September analysis by Moody’s Analytics chief economist Mark Zandi, Americans in the bottom 80% of the income distribution — those making less than $175,000 a year — are barely keeping their spending on pace with inflation. Meanwhile, the top 20% of consumers are growing their spending.
“The data also show that the US economy is being largely powered by the well-to-do,” Zandi argued.
For his part, Powell cautioned that the relationship between the stock market and spending shouldn’t be viewed as a dollar-for-dollar correlation. The more wealth someone has, the lower an additional dollar of wealth matters, Powell said, and consumers’ inclination to spend drops as they reach very high levels of wealth.
Meanwhile, those at the lower end of the income spectrum have a higher inclination to spend as they earn more.
“It would affect spending if the stock market went down,” Powell said in a press conference after the Fed’s meeting on Wednesday. “But it wouldn’t drop sharply unless there were quite a sharp drop in the stock market.”
Stocks have reached new highs in 2025, led by Big Tech and investors’ hopes that AI will lead to blockbuster profits, pulling the overall market higher.
Jennifer Schonberger is a veteran financial journalist covering markets, the economy, and investing. At Yahoo Finance she covers the Federal Reserve, Congress, the White House, the Treasury, the SEC, the economy, cryptocurrencies, and the intersection of Washington policy with finance. Follow her on X @Jenniferisms and on Instagram.
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