The so-called K-shaped economy is now being linked to “a dramatic increase in food insecurity,” according to a new blog post by the Federal Reserve Bank of New York.
Large groups of people are facing high levels of financial difficulties, according to a post published on Wednesday, based on data from the Survey of Consumer Expectations.
Among this group, low- and middle-income households have also been hit hardest by long-term inflation. A large portion of their spending is allocated to goods that have seen prices rise since the pandemic, such as housing, food and utilities, causing them to cut back on purchases, the researchers found.
The high cost of living, combined with cuts to the Supplemental Nutrition Assistance Program, or SNAP, “has led to renewed concerns about food insecurity among those under the K shape,” the New York Fed researchers wrote.
Families are struggling because of the expiration of pandemic-era aid, including expanded SNAP benefits, formerly known as food stamps, researchers said. Most recently, President Donald Trump’s “great big bill” tightened work requirements for SNAP benefits.
About 14% of American households will be food insecure by 2024, according to a recent report by the US Department of Agriculture.
The New York Fed said that food shortages may be linked to why Americans are now feeling in dire straits as the economy has grown at its fastest pace since the start of the Covid pandemic.
After a series of recent financial shocks, consumer sentiment has been falling. The University of Michigan Surveys of Consumers, a widely watched bellwether, fell sharply in May.
“Consumers have generally been pessimistic about their financial situation and outlook,” New York Fed researchers wrote.
But there are also “significant” differences across households, the New York Fed researchers found, “supporting the view of a ‘K-shaped’ economy.”
The height of the K-shape
Stock market rallies and appreciating housing prices tend to favor high-income households, who own such assets equally, and leave low-income households behind.
The pandemic has fueled those forces — as stocks and real estate wealth grow while lower-income households struggle to keep up with rising prices — leading to the idea of a K-shaped economy.
Now, fuel prices are also dropping to the bottom of K. The national average price of gasoline reached $4.46 a gallon as of Wednesday, up nearly 40% from last year, according to AAA.
“A high level of the K-shape reflects high and growing levels of net wealth,” the New York Fed researchers wrote, while “a low level of the K-shape represents a large proportion of middle and low income earners facing high levels of economic uncertainty and financial hardship.”
The central bank’s monthly Survey of Consumer Expectations, released on May 7, also found that nearly a third of households expect to be in a worse financial situation one year from now.
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