Middle-class Americans are “squeezing more life out of every dollar before deciding to spend it,” according to a new Federal Reserve report, which found credit card use has increased, fewer people were making retail visits and necessities had become the focus for consumers.
The latest “Beige Book” from the U.S. central bank showed that middle-class consumers are struggling to afford day-to-day life while low-income Americans are under greater financial strain. Wealthier households remain resilient and are feeling less pain from price increases, the report noted.
The Fed’s observations were made in its monthly report on the nation’s economic health, using data collected by the institution’s 12 regional banks. Most regions reported that prices increased at a “moderate to strong pace overall.”
Behind the affordability crisis is the war in Iran which is driving up energy costs, according to the report, published Wednesday.
“Districts noted that energy-related costs tied to the conflict in the Middle East were the primary driver of inflationary pressures, with spillovers into shipping, packaging, groceries, and fertilizer,” the Fed said.
Among May’s “Beige Book” main takeaways were:
- Increased credit card usage among Americans,
- Stronger demand for necessities,
- Fewer retail visits,
- Signs of a K-shaped economy.
Consumers’ increased credit card use - which may reflects cash flow troubles - and demand for necessities tracks with existing research about the nation’s debt. Some 73 percent of credit card debt - around $883 billion - in early 2026 had been spent on everyday expenses or emergencies, a January study from Academy Bank found.
The nation’s credit card debt fell from $1.28 trillion to $1.25 trillion January to April, the New York Federal Reserve also reported in May, which could signal consumers using their tax refunds to pay down debt.
The varied impact on spending across low and high earning households are signs of a K-shaped economy, the Fed report noted.
In a K-shaped economy, all income tiers tend to spend less when recessions, depressions or economic downturns hit. As the economy recovers, spending in wealthier homes bounces back while low- and middle-income households keep spending tight.
“The recent K-shaped story is often told in terms of consumption growth - of rich shoppers powering the economy with their spending while others pull back,” the Federal Bank of Minnesota wrote in a May analysis.
