Fed's Goolsbee says the stock market isn't propping up consumer spending — it's strong on its own

Chicago Federal Reserve president Austan Goolsbee said US consumer spending is being fueled by solid, broad-based strength across income levels, rather than being artificially propped up by a surging stock market.

“It’s very hard to have as strong consumer spending with numbers as we’ve been getting and not have it be broad-based,” Goolsbee said in an interview with Yahoo Finance.

The stock market has roared higher — the S&P 500 (^GSPC) is up nearly 13% this year — driven by the promise of artificial intelligence and a corresponding investment boom. Some observers say the lofty market is fueling consumer spending by higher-income consumers. But Goolsbee argued that robust consumer spending is fueled by solid, broad-based strength across all consumers.

Goolsbee pointed to Bureau of Labor Statistics data showing the bottom 90% of the income distribution accounts for roughly 75% of all spending in the US economy.

Recent statistics published by the New York Fed mirror this finding. The data shows that cumulative real spending growth over the past three years has remained remarkably similar across all income tiers. The spending growth gap between high- and low-income consumers has differed by only 1 percentage point.

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On the other hand, Goolsbee acknowledged that stock ownership in the US remains heavily concentrated in the top 10% of earners. But he said if a booming market were the primary driver of consumption, it would leave a distinct paper trail in the data.

“So you would be seeing bigger differences in the spending rates of the top 10% compared to everyone else than you have seen,” he said.

However, the Fed’s Beige Book, a compilation of anecdotal evidence gathered by each of the central bank’s 12 district banks, paints a more bifurcated picture of consumer spending. The Beige Book reported that over half of its 12 regional districts saw consumer spending driven by high-income households. The Beige Book noted even in Dallas, where companies reported solid retail sales, there were “some reports of lower-income customers being more cautious with spending.”

Read more: Chicago Fed’s Goolsbee calls September inflation ‘discouraging’ but favors waiting on more data

Goolsbee sent a warning about speculative market bubbles. He cautioned that intensifying hype around AI and its future potential could push up stock valuations, increasing the temptation for consumers to spend money they do not actually have.

“When you do that, you can overload the capacity in the short run of what the economy can handle, and you can generate inflation,” he said.