Federal Reserve Chair Jerome Powell acknowledged Wednesday that the stock market’s rise is helping support consumer spending (and the broader economy) right now.
If the market declines, Powell said, it could hurt consumer spending. But spending wouldn’t take a big hit unless the market crashed.
“I think it’s certainly a factor that supports consumption right now,” Powell said in response to a question from Yahoo Finance about how much consumer spending and the economy depend on the stock market staying strong.
The question is what prominent role the stock market is playing in supporting spending and the overall economy.
Powell and others have noted that the United States is in a “bifurcated economy”: Low-income people are cutting back on spending, while wealthy people who benefit from market rallies continue to boost spending, perhaps keeping the economy afloat.
Read more: How Employment, Inflation, and the Federal Reserve Are Related
According to a September analysis by Moody’s Analytics chief economist Mark Zandi, Americans in the bottom 80% of the income distribution (those earning less than $175,000 a year) are barely keeping up with inflation. Meanwhile, the top 20% of consumers are increasing their spending.
“The data also shows that the American economy is being driven largely by the rich,” Zandi argued.
For his part, Powell cautioned that the relationship between the stock market and spending should not be viewed as a dollar-for-dollar correlation. The more wealth someone has, the less an extra dollar of wealth matters, Powell said, and consumers’ inclination to spend falls as they reach very high levels of wealth.
Meanwhile, those at the lower end of the income spectrum have a greater inclination to spend as they earn more.
“It would hurt spending if the stock market fell,” Powell said at a news conference after the Federal Reserve meeting on Wednesday. “But it wouldn’t fall sharply unless there was a pretty steep decline in the stock market.”
Stocks have hit new highs in 2025, led by Big Tech and investors’ hopes that AI will drive blockbuster profits, driving the broader market higher.
Jennifer Schonberger is a veteran financial journalist covering markets, economics and investing. On Yahoo Finance he covers the Federal Reserve, Congress, the White House, the Treasury, the SEC, the economy, cryptocurrencies, and the intersection of Washington politics and finance. Follow her on X @Jenniferismos and continue instagram.
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