Lower-income US consumers increasingly ‘price sensitive’: Fed

US consumers in lower income groups are becoming more sensitive to prices when making spending decisions, showing reluctance to fork out for non-essentials, the Federal Reserve said in a report on Wednesday.

While consumption saw a boost in recent weeks from the holiday shopping season, spending patterns continued to diverge among income groups, the Fed added in its “beige book” survey of economic conditions.

Some parts of the country reported that “spending was stronger among higher-income consumers,” who were willing to splurge on luxury goods, travel and other experiences, the Fed said.

“Meanwhile, low to moderate income consumers were seen to be increasingly price sensitive and hesitant to spend on nonessential goods and services,” the survey added.

The report underscores uneven conditions within the world’s biggest economy -- despite resilient GDP growth figures -- where higher-income Americans are seeing wealth and salaries rising while those with lower incomes grapple with fewer gains and high costs.

Banking conditions were generally stable or improving, the central bank added, although there was some increased demand in credit cards, home equity loans and commercial lending.

Overall, the Fed noted that “outlooks for future activity were mildly optimistic with most expecting slight to modest growth in coming months.”

The latest report comes around two weeks before the central bank is due to announce its next decision on interest rates.

Markets widely expect policymakers to keep rates unchanged for now, as officials assess the impact of recent back-to-back reductions.

The Fed balances between the need for rate cuts to boost the economy as the employment market cools, and the risk of persistent inflation as President Donald Trump’s tariffs work their way through supply chains.

Employment was mostly unchanged recently while wages grew moderately, the Fed said Wednesday. But “cost pressures due to tariffs were a consistent theme across all districts” monitored by the central bank.

“Several contacts that initially absorbed tariff-related costs were beginning to pass them on to customers as pre-tariff inventories became depleted or as pressures to preserve margins grew more acute,” the Fed said.

Even though firms expect price hikes to ease, they anticipate that costs will remain elevated in the near future.