K-shaped economy and ‘collective holding of breath’ about the AI bubble both appear in Fed’s temperature check

The Federal Reserve’s latest Beige Book shows a sharply diverging U.S. economy, where affluent households continue to spend while lower- and middle-income consumers begin to buckle under financial pressure: the clearest sign yet that the economy is splitting into something unmistakably K-shaped.

The Fed’s latest report describes a widening gap between America’s social classes, with “early signs of strain on middle-income consumers.”

On the lower end, households are cutting back on dining out, trading down to cheaper groceries, getting “sticker shock” from car prices, and responding more sharply to price increases. Retailers across several Fed districts noted that budget-conscious shoppers have become increasingly sensitive to small changes in prices or promotions. Fast-food chains also s