UBS On-Air: Market Moves UBS On-Air: Paul Donovan Daily Audio 'The rate debate'
Aug 29, 2025
July's personal income and spending data is in focus, revealing insights into consumer sentiment. Middle-income earners are holding strong, influencing overall consumption patterns. Political polarization is causing some quirks in spending behavior. The discussion also highlights how these trends may impact interest rate decisions by the Federal Reserve and set the stage for inflation expectations. Ultimately, consumption remains critical for the US economy this year.
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Middle-Income Consumers Driving Spending
- Middle-income US consumers started the year relatively strong, which has sustained real spending so far.
- Consumption patterns are volatile and more important than investment for overall GDP performance.
Polarisation Shows Up In Spending
- Political polarization is visible in consumption, notably through front-loading of durable goods.
- The consumer ultimately has the firepower to determine overall economic performance over time.
Use Consumer Health To Gauge Fed Cuts
- Watch the overall state of the US consumer to judge if the Fed can cut rates.
- Market expectations hinge on whether consumer weakness justifies policy easing.