The Hindu: Published on 4th November 2025.
Why in News?
The U.S. economy is showing early signs of strain as lower-income households face rising costs, possible loss of federal food benefits, and healthcare price hikes amid an ongoing government shutdown. Policymakers and the Federal Reserve are closely monitoring whether consumer spending — a key driver of U.S. growth — can continue to sustain the economy in such conditions.
Background:
Consumer spending contributes around 70% of U.S. GDP, making it the core stabilizer of the economy.
The U.S. is currently undergoing a federal government shutdown (now in its second month), which has disrupted essential services, delayed data reporting, and frozen federal employee pay.
Rising healthcare costs and potential cuts to Affordable Care Act (Obamacare) subsidies threaten to further strain family budgets.
The Supplemental Nutrition Assistance Program (SNAP), which supports nearly 42 million low-income Americans, is also facing funding uncertainty due to the shutdown.
Key Issues / Challenges:
Rising Cost of Living:
Inflation continues to drive up healthcare and essential prices, disproportionately affecting lower-income families.
Job Market Uncertainty:
Corporate layoffs from companies like Amazon and UPS, and slowing hiring trends, are weakening the job outlook.
Loss of Federal Benefits:
Possible suspension of food assistance (SNAP) and healthcare subsidies may push millions into financial hardship.
Data Blackout for Policymakers:
The shutdown has halted key government data releases, leaving the Federal Reserve and economists without real-time insights into the economy’s performance.
Widening Inequality (“K-Shaped” Recovery):
High-income families continue to thrive through stock market gains and luxury spending, while lower-income groups face debt, defaults, and restricted consumption.
Economic Impact:
The shutdown could trim GDP growth for the fourth quarter by about 1 percentage point, according to economist Joseph Brusuelas.
The loss of SNAP benefits alone could reduce annual consumer spending by $100 billion, though its GDP effect may be modest.
Reduced consumer confidence and the decline in discretionary spending could dampen the crucial holiday shopping season (Thanksgiving–Christmas).
Policy & Government Response:
Federal Reserve Action:
The Fed has already cut interest rates by 0.25%, aiming to cushion the slowdown. However, Chair Jerome Powell warned that the “K-shaped” economy indicates uneven resilience across income groups.
Judicial Intervention:
A federal judge in Rhode Island temporarily blocked the suspension of food benefits, providing limited relief.
Possible Fiscal Measures:
Treasury Secretary Scott Bessent suggested larger tax refunds and possible withholding adjustments next year to boost disposable incomes.
Broader Context:
The U.S. economy, worth nearly $30 trillion, remains resilient but increasingly vulnerable to policy shocks, consumer fatigue, and corporate readjustments after years of labor hoarding.
The situation is unfolding during President Donald Trump’s second term, when several policy changes in trade, immigration, and taxation are still being implemented.
Outlook Ahead:
Short-term:
The economy may experience slower growth (around 1%) in the next quarter, especially if the shutdown continues.
Medium-term:
Potential tax refunds and lower withholding rates could give a temporary boost to household income early next year.
Long-term:
Persistent inequality and weakening of the social safety net may deepen the divide in consumer strength, sustaining the K-shaped trajectory.
Expert View:
“The American economy is a $30 trillion dynamic and resilient beast, but it’s going to face a test here at the turn of the year.”
— Joseph Brusuelas, Chief Economist, RSM US
“Consumer spending has defied many negative forecasts, but the bifurcated pattern shows clear signs of stress.”
— Jerome Powell, Chair, Federal Reserve
Conclusion:
- The U.S. economy stands at a critical inflection point — balancing between resilience and vulnerability.
- While wealthier households continue to spend freely, low-income consumers — the true backbone of America’s consumption economy — are being squeezed by inflation, benefit losses, and job insecurity.
- Without quick fiscal intervention or an end to the shutdown, the risk of an economic slowdown and widening inequality will rise sharply in the coming months.
