US Fed flags spending divide among consumers as employment cools

WASHINGTON, United States —The US central bank flagged a growing divergence in consumption Wednesday, with overall spending — a key driver of the world’s biggest economy — pulling back even as higher-end sales stayed intact.

Employment also weakened in recent weeks, while prices continued rising moderately as President Donald Trump’s tariffs squeezed business margins, said the Federal Reserve’s “beige book” survey of economic conditions.

The report underscores the competing pressures that Fed policymakers face, as they decide whether to make a third consecutive interest rate cut at their upcoming meeting in December.

Adding to complications are a US government shutdown that lasted from October to mid-November and delayed the release of economic data that officials typically rely on.

READ: Record-breaking US shutdown to end as political fallout begins

The Fed lowered the benchmark lending rate twice this year as the jobs market cooled, but there are growing divisions among its ranks because inflation remains markedly above its two-percent target.

“Overall consumer spending declined further, while higher-end retail spending remained resilient,” said the Fed on Wednesday.

It added that some retailers felt a negative hit from the record-long government shutdown, while some of the sources they consult also flagged “cautious discretionary spending among consumers.”

Labor market

Meanwhile, “employment declined slightly” with some districts seeing weaker labor demand, the report added.

There was also an uptick in layoff announcements, although more districts reported seeing businesses limiting headcounts through hiring freezes and attrition rather than letting people go.

Prices climbed slightly while “cost pressures were widespread in manufacturing and retail, largely reflecting tariff-induced increases,” the Fed said.

READ: US Fed makes first rate cut of 2025 over employment risks

The Fed’s most recent rate cut brought interest rates to a range between 3.75 percent and 4 percent.

READ: Divided US Fed backs second quarter-point rate cut of 2025

CME Group’s FedWatch tool pegs the likelihood of a further 25-basis-points rate reduction in December at 85.1 percent.