The economy is chugging along, but consumers are uneasy

Consumers report feeling increasingly glum about the economy.

Consumers report feeling increasingly glum about the economy. Still, data suggests there has been no significant slowdown in their spending habits.

The conflicting trends have made for an increasingly difficult landscape for the Federal Reserve to navigate as it meets Tuesday and Wednesday to decide where to set its key interest rate. Investors say a rate cut is virtually guaranteed amid signs of a weakening labor market.

There are also concerns about what is driving consumer spending. In an interview on CNBC this month, McDonald’s CEO Chris Kempczinski referred to a “two-tier economy,” in which upper-income groups spend largely free of financial constraints, while middle- and lower-income households feel squeezed.

The stock market continues to set records, thanks mainly to optimism for returns on big investments in artificial intelligence. Stock holdings are disproportionately concentrated among the more well-off and give them greater financial flexibility. According to data from Moody’s Analytics, the top 10% of household wealth holders now account for about 50% of all spending in the economy.

“The economy can move forward simply with folks in the top continuing to buy, even if the ones in the middle and lower are struggling, simply because so much spending is done by the well-to-do,” said Mark Zandi, chief economist at Moody’s Analytics. “But it can’t flourish.”