‘K-Shaped’ Spending Reveals Economic Divide Across Key Sectors

The U.S. economy struggles with recession fears, a government shutdown, and tariff doubt. Consumer spending shows a split. Wealthy Americans spend more with extra funds. Lower-income buyers cut back on costs.

Understanding the ‘K-Shaped’ Economy

The term “K-shaped” shows how groups move in different ways.
• The top group gains money, grows its buying power, and sees financial wins.
• The bottom group loses income and limits spending.

This trend appears in many big sectors. The gap between rich and poor widens.

Key Economic Indicators and Upcoming Reports

The Labor Department must release its Consumer Price Index report. The report was held back because of a recent government shutdown. It marks price shifts in goods and services, a key sign of household stress. The report does not include shutdown effects but sheds light before the Social Security Administration sets cost-of-living changes on November 1. ### Sector-by-Sector Breakdown of Bifurcation

Food and Beverage

• Coca-Cola leads in consumer trends. CEO James Quincey notes that higher-priced drinks such as Topo Chico sparkling water and Fairlife protein shakes boost sales. Rich buyers choose these products. Yet, Coca-Cola sees steady demand at both dollar stores for bargain seekers and at fast-casual spots and parks that attract wealthier buyers.

• McDonald’s faces fewer visits from lower- and middle-income families. CEO Chris Kempczinski calls this a “two-tier economy.” Rich buyers continue their habits, while others skip meals or eat at home to save money. Chipotle’s CFO Adam Rymer adds that money-strapped groups feel pressure, which shapes future price steps.

Automotive and Airfare

• In cars, the average new vehicle price is now over $50,000. Rising auto loan troubles and vehicle repossessions hit most buyers with low credit scores. Cox Automotive analyst Erin Keating sees that rich households drive the high-end market.
• In air travel, premium seat sales for airlines like Delta top those of coach cabins. CEO Ed Bastian sees steady sales of higher-priced, more spacious seats among wealthier travelers.

Hospitality

• Hilton’s CEO Christopher Nassetta sees this spending split but expects it to change soon. He thinks that a drop in inflation and interest rates may bring lower- and middle-income buyers back. Recent Hilton news shows that revenue in budget hotels, like Hampton by Hilton, falls while luxury brands perform well. This split in sales marks the change in consumer behavior.

What This Means for the Economy

The “K-shaped” spending shows that not all buyers feel better off. Those with extra money can handle rising prices while they still spend. Others cut out non-essential buys and pick more budget-friendly choices. This split challenges businesses, forcing them to serve groups with very different needs.

Looking Forward

The Consumer Price Index report comes soon. Analysts and policy experts now watch how price shifts hit each income group. Some industry heads hope that softer inflation and easier conditions soon will smooth the spending split and bring a more even recovery.

Contributors to this report include CNBC’s Amelia Lucas, Michael Wayland, Alex Harring, Luke Fountain, and Leslie Josephs.

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This Week’s Critical Inflation Report Arrives Amid Growing Doubts Over Data Accuracy

Published: October 21, 2025 | Updated: October 21, 2025

Financial markets wait for the September Consumer Price Index report on Friday. Investors note its high importance. They see a gap between the report and its data. Some fear the collection methods now add doubt.

CPI Report Under Intense Scrutiny

The Bureau of Labor Statistics compiles the CPI. Many see it as a top source for U.S. economic data. Recent methods include in-person visits, phone calls, and written replies. These steps now face strong doubt. A government shutdown in Washington, D.C. has made work harder for federal teams, and the BLS feels the strain.

Vishal Khanduja, who leads broad markets fixed income at Morgan Stanley Investment Management, said,
"Skeptics like me will check how pure this data is. We ask how the team worked with fewer staff. We also ask what steps they took before the report came out."

The BLS faced staff cuts even before the shutdown. It even dropped some urban areas from its sampling. With most offices closed, putting the report together is more challenging. This gap may keep the report from showing the full picture of inflation.

Earlier this year, President Donald Trump removed former BLS Commissioner Erika McEntarfer. He did so after data on nonfarm payrolls went lower than expected. This move highlights the strong pressure on the agency.

What Economists Are Expecting

Many economists forecast small moves in the CPI. Dow Jones experts expect annual inflation to hold at about 3.1%. This rate applies to both the main index and the version that cuts out food and energy. They predict month-over-month gains of 0.4% for the full index and 0.3% for the trimmed version. These levels follow August’s numbers.

Most other economic reports have stalled because of the government shutdown. The Labor Department recalled BLS staff for this report, as the CPI helps set Social Security cost-of-living adjustments.

Citigroup economist Veronica Clark shared her view:
"As the shutdown may last into November, we worry about missing real-time numbers. The data in November seems at risk too. We will look for any hints on October CPI work with Friday’s report."

Market and Policy Implications

The Federal Reserve meets next week against this backdrop. Experts expect a 0.25 percentage point drop in rates from the current 4.00% to 4.25%. A similar move in December is also likely. Yet, the long-term view beyond 2025 stays unclear. President Trump now supports lower rates. He may soon pick a new chair for the Fed who shares this view.

Market experts caution that weak inflation data may make the Fed’s task more complex.

Mike Wilson, Chief Investment Officer at Morgan Stanley, told CNBC,
"I think we may not learn much new from this CPI data. I see it as a sign for the Fed to cut rates in a stronger way. But the risk is that the data may not back a deeper rate cut."

Key Takeaways

• The September CPI report shows doubts due to fewer staff and work issues amid the shutdown.
• Despite worries, most forecasters see small changes that follow August’s trends.
• Most other economic reports are on hold, leaving limited fresh data for markets and policy teams.
• The Federal Reserve may cut interest rates soon, though future policy remains unclear.
• Political moves and changes in leadership add more strain to trusting the data.

As the markets wait for Friday’s numbers, investors, economists, and policy teams will study the data with care. They know that these unusual times may hide the true view of the U.S. economy.

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U.S. Budget Deficit Narrows in 2025 Amid Record Tariffs and Rising Debt Payments

October 16, 2025 — The U.S. budget moved to a lower deficit in fiscal year 2025. Tariff collections reached new records. They helped cover higher spending on our growing debt. The Treasury Department shared the news on Thursday. Even with tough economic times, the government cut its shortfall compared to last year.

Deficit Down Slightly Despite Rising Costs

The federal government ended 2025 with a $1.78 trillion budget deficit. This number is $41 billion less, about 2.2% lower than the 2024 deficit. This amount is still high by past standards. But it shows progress in handling the red ink during hard fiscal times.

In September, the fiscal year closed with about $5.2 trillion in revenue, even though spending went over $7 trillion. A large jump in customs duties, driven by tariffs set earlier this year, kept the result from worsening.

Tariff Collections Reach New Highs

Tariff revenues reached $202 billion. This jump is 142% higher than in 2024. The strong rise came with tariffs on imported goods set by President Donald Trump. In the month of September alone, tariff payments hit a record $30 billion. That month increased by 295% compared to the same month last year.

These strong tariff revenues brought a September surplus of $198 billion. This new record gave a needed boost to government funds.

Debt Payments Hit Record Levels

Even as tariff money improved the numbers, the government had to cover very high interest on the growing national debt. Now, the U.S. holds $38 trillion in debt. At the same time, interest payments climbed.

Total interest on the debt passed $1.2 trillion in 2025. That is a new record and about $100 billion more than in 2024. Without counting interest earned from its own investments, net interest payments came to $970 billion. This amount is $57 billion more than defense spending. Debt service became the fourth-largest part of the federal budget, after Social Security, Medicare, and healthcare costs.

Fiscal Metrics and Economic Outlook

Officials in the Treasury now say that the budget deficit-to-GDP ratio will fall to 5.9% for 2025. This is a small improvement but still above the usual 3% seen when the economy is stable. The ratio has stayed near 6% since 2022 as fiscal stress continues.

Treasury Secretary Scott Bessent showed guarded hope last week. He said, “We’re on our way” to cutting the deficit burden. He mentioned forecasts by the Congressional Budget Office that point to a ratio below 6%.

Impact on Inflation and Monetary Policy

Tariffs raised funds, but they also brought a worry for higher prices on some goods. So far, price rises on these items have been slow and steady rather than sharp.

Officials at the Federal Reserve have signaled a possible cut in base interest rates. Their view is that the price effects from tariffs will not last long. The current federal funds rate is 4.00% to 4.25%.

Summary of Key Figures:

• 2025 Budget deficit: $1.78 trillion (2.2% decrease from 2024)
• Tariff revenues: $202 billion (142% increase from 2024)
• September 2025 surplus: $198 billion (record)
• National debt: $38 trillion
• Interest payments on debt: $1.2 trillion (record high)
• Net interest payments: $970 billion (exceeds defense spending by $57 billion)
• Deficit-to-GDP ratio: 5.9% (small improvement)

The data from the Treasury Department shows a close link between trade rules, debt payments, and budget numbers as the U.S. faces tough economic times. In the coming months, leaders will work to balance tariff revenue gains with the risk of rising prices. They will also meet the high costs of paying the national debt.

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Wells Fargo and Pfizer CEOs Warn U.S. Must Innovate to Compete with China

At CNBC’s first Invest in America Forum in Washington, D.C., two top business leaders warned about the U.S. losing its place in the world market. Wells Fargo CEO Charlie Scharf and Pfizer CEO Albert Bourla stressed the need for fresh ideas if the U.S. is to stay ahead of China.

AI as a Double-Edged Sword in U.S. Productivity

Charlie Scharf pointed out how AI changes work in finance. AI helps code teams work 20% to 40% faster. It does this by letting computers take on tasks that people once did. Still, it cuts the number of needed workers.

Scharf said, "We will likely have less people, absolutely." He meant that even though work moves faster, Wells Fargo keeps many staff and still gets more done. At other banks like JPMorgan Chase and Goldman Sachs, fewer hires are already the norm as AI joins daily tasks. He also mentioned that new rule changes could adjust money rules at banks. Such rule changes may let smaller banks work better with their communities even when Washington stays still.

China Closing the Gap in Biotechnology and Pharmaceuticals

Pfizer CEO Albert Bourla shared his worry over China’s fast moves in biotech and drugs. He noted that China now files more patents than the U.S. Bourla warned that if this pace persists, China might pull ahead in health science work.

"Five years ago, the U.S. led with a 90%-to-10% share in patents," Bourla said. "That gap is shrinking, and they might soon do better than us if we do not act soon." He urged change in how efforts are made. He said the U.S. must focus on doing more work, trying fresh ideas, and keeping rules steady.

Removing Barriers for Innovation

Bourla also spoke against trade duties and uncertain prices that slow progress. In a move to keep drug prices steady, Pfizer agreed with the previous administration on a three-year break from specific drug duties. This break came with a promise to keep building drug plants in the U.S.

"Tariffs and price shocks are now less of a worry," Bourla said. He added that AI stands as the next phase in medicine. He looks forward to AI cutting the time needed to find new treatments, especially for hard diseases like Alzheimer’s and cancer.

"We have tried for years to find cures. AI will make it happen," he said.

The Call for Investment and Policy Change

Both CEOs agreed that more spending on new tech and factories is needed soon. They stressed that clear and steady rules must back these efforts. This will help the U.S. lead in new fields and counter the rise of China in world markets.

As the U.S. economy meets new tests, leaders like Scharf and Bourla call for a renewed focus on fresh ideas, smart use of AI, and simple rules. This path will help America stay at the front of science and business progress.

For more insights and coverage on U.S. economic policy and innovation, stay tuned to CNBC.

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Fed Chair Jerome Powell Signals Potential End of Quantitative Tightening, Uncertain Outlook on Interest Rates

October 14, 2025 — At the business economists’ meeting in Philadelphia, Federal Reserve Chair Jerome Powell spoke about how the bank nears the end of its plan to shrink its bond holdings. The Fed works to finish its move away from the large balance sheet built during the pandemic. Powell did not give a clear map for future interest rates. This leaves the market with some doubt.

Nearing the End of Balance Sheet Reduction

Powell said the Fed now holds over $6 trillion in securities. This number falls from nearly $9 trillion at the height of the pandemic. Since mid-2022 the bank has let securities mature and not reinvest the money. This step reduces the holdings and makes the money supply less loose.

"Our plan is to end the balance sheet runoff when reserves stay a bit above what we see as a safe level," Powell said. He meant that the bank thinks there is enough money in the system but not too much. He expects that level to come in the coming months.

This change goes against the bank’s earlier actions. Before, the Fed bought many Treasury and mortgage-backed securities to put more cash in the system and help the recovery. Now, with market conditions in change, the bank wants to keep enough cash for smooth payments while avoiding overheating the economy.

Implications for Financial Markets

Even if balance sheet issues sound tough, they affect market moves. Powell pointed out small signs that cash in the system is getting tighter. He warned that further cuts in the balance sheet might slow economic growth. Yet, he said that the bank will not go back to a balance sheet of around $4 trillion like before Covid.

Powell also talked about the interest paid on bank reserves. Some politicians, such as Senator Ted Cruz (R-Texas), have questioned this method. Powell sees it as important for keeping a close hold on short-term rates. He said, "If we stopped paying interest on reserves and other items, the Fed would lose control over rates." The bank faced brief losses when it raised rates quickly, but Powell expects its net income to soon show a rise.

Interest Rate Outlook: A Delicate Balancing Act

Powell repeated the main idea of the policy group, the FOMC. Leaders worry as signs of tightening in the labor market add to the challenge of keeping inflation in check while keeping people employed. Powell noted that though the jobless rate stayed low until August, the growth in payrolls is slower. This change is linked to fewer people working and new job seekers.

After a small rate drop in September, the market thinks there may be two more cuts this year. Powell was careful with his words. He said, "There is no free path in policy as we work with the challenge of meeting both our work and price goals."

Data Challenges and Economic Outlook

The government shutdown makes it hard for the Fed to get the latest data, like job reports and price measures. Powell said that the data they have shows the overall economic view stays steady since the last meeting. He also mentioned that rising costs for goods seem linked more to tariffs than to a deep rise in prices. He referred to upcoming data on consumer prices from the labor bureau.

Summary: What to Watch Next

• Quantitative Tightening: The bank nears the end of shrinking its bond holdings, with reserves close to a safe level.
• Interest Rates: There is no clear plan for rate moves; the bank works to balance price shifts and jobs.
• Labor Market: Signs show slower worker growth and tighter conditions.
• Economic Data: With ongoing data gaps, the summary of economic news needs care.
• Interest on Reserves: Paying interest on reserves helps the bank steer short-term rates. No plan exists to stop these payments despite some political criticism.

Powell’s words make it clear that even as the Fed ends one part of its plan, its path depends on new data and ongoing challenges in price and work problems.

This article is based on remarks by Federal Reserve Chair Jerome Powell on October 14, 2025, at the business economists’ meeting, with extra information on how the Fed manages its monetary policy.

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