Key points
- Upper-income households are increasingly driving growth in consumption—the largest component of the U.S. economy. The top 10 percent of households by pre-tax income now account for fully a third of all economic activity.
- Higher-income households also own the vast majority of investment assets, and the rising importance of their purchasing power has coincided with record-high stock prices.
- We believe there is a strong policy and technology component to the causes of rising wealth disparity, not just post-pandemic dynamics.
- High equity and home prices make it increasingly difficult for younger generations to become asset owners at the same pace as prior generations, raising the stakes for policymakers.
The pandemic recovery period was marked by a wave of stimulus programmes from governments around the globe. In the U.S., these included cutting interest rates to zero, extending forgivable loans to business owners, and distributing direct support to households. The combined firepower was largely successful in combatting an economic slowdown, but the nature of the subsequent recovery has been uneven. The post-pandemic period has seen a sharp improvement in outcomes for higher-income households, alongside stagnation and relative decline for those with lower incomes.
Some analysts have confined themselves to the post-pandemic period when looking at this phenomenon. Our team at Wealthy Asset Management believes that view is too limited. Economic bifurcation in the U.S. accelerated after the pandemic, but it did not start five years ago. Instead, we see a multidecade process that has left the U.S. with what is effectively a two-tier economy.
"Upper-income households are increasingly driving the economy and reaping the benefits of its advance, while lower-income and newly formed households face a narrowing path ahead. The longer this persists, the more it constrains the resilience of the broader economy."— Gabriel Abbas, Chief Financial Officer, Wealthy Asset Management
Who's buying?
The largest component of the U.S. economy—by far—is household consumption, which routinely accounts for almost three times as much economic activity as government spending or business investment. Increasingly, that consumption is coming from the top 10 percent of households by income. In the second quarter of 2025, consumers in that stratum accounted for just under half of all household spending, up from just over a third in the early 1990s. Put differently, consumption by 10 percent of households was behind 34 percent of all economic activity in the United States.
It is no coincidence, in our view, that the top 20 percent of households by income directly or indirectly hold 90 percent of stock investments, and that the ramp-up in consumption is concurrent with all-time highs in U.S. equity indexes. The circular nature of that relationship—with stock prices fuelling demand that drives corporate earnings that lead to higher stock prices—means that even a relatively small shift in consumption patterns could have large implications for the overall economy and global equity performance.
How we got here
There are numerous lenses through which we can view the shift in purchasing power between income strata. Our team identifies four interconnected forces that together explain the bulk of the divergence:
Changes in the federal budget
Larger tax deductions and expansionary fiscal policy have had both direct and indirect economic benefits for wealthy households with large investment portfolios. Each successive iteration of tax reform has skewed advantages toward capital income rather than labour income, compounding the divergence over time.
Declining relative importance of wages
Viewed from the income side of GDP, labour's share of national production has been falling since 2001. For households without investment income, the result is a relative decline in economic participation—wages have grown, but more slowly than the returns available to those who already hold assets.
Post-crisis monetary policy
In the aftermath of the global financial crisis, countries around the world kept interest rates artificially low. This policy was intended to support asset prices, propping up banks and investors facing large writedowns on defaulted loans—and it was largely successful. The side effect, however, was that rising asset prices made it more expensive for income-constrained workers to purchase homes or build savings portfolios.
Technological rewards and AI
Income disparity arose alongside revolutionary changes such as the rise of the internet and the emergence of practical artificial intelligence. The flow of rewards for those world-changing innovations to their creators has tended to exacerbate inequality. Ultimately, we think it was the combination of technological innovation and low interest rates that led to significant gains for the U.S. economy—and government policymaking that helped direct most of those benefits to upper-income households.
No clear path back
The cleanest way to break up the current stagnation in economic mobility would be to move wage-dependent households into the investor class. That is easier said than done, due to changes in initial conditions. Average wages are up a hefty 77 percent since 2007, but rent has risen 90 percent over the same period. That 13 percent relative rent inflation is a major drag given that the overall savings rate is only 4.6 percent of disposable income. Add in food inflation, a general rise in the cost of living, and the impact of high student debt levels, and the mathematical reality is that there are severe practical limits on how much younger households can save.
Historically, homeownership has been the primary path to wealth accumulation for U.S. households. Absent a significant policy shift, it is difficult to see how low savings and high home prices will allow the next generation of Americans to enjoy the same access to homeownership as prior generations—even if mortgage rates were to decline meaningfully from current levels.
"The U.S. today is near the highest levels of economic inequality since record keeping began nearly 60 years ago. What cannot be reasonably disputed is that this is a structural condition—not a cyclical one—and it demands structural thinking from investors and policymakers alike."— Cameron Moshfegh, Chief Executive Officer, Wealthy Asset Management
Implications for the Federal Reserve
A narrow base for economic growth has potentially large implications for the Federal Reserve. Traditionally, the U.S. central bank has cut interest rates to spur investment and hiring, based on the idea that consumption by the newly employed would lead to a virtuous cycle of economic expansion. Today, however, the case for that type of accommodation—while it still exists—looks weaker.
Instead, the low-hanging monetary fruit now appears to be asset prices, which the Fed acts on through two related channels. One is by lowering longer-term interest rates, which makes future cash flows more valuable today. The other is through currency debasement: rate cuts that weaken the dollar. Both a lower discount rate and a weaker currency tend to drive up equity and real estate prices, and those factors in turn tend to spur wealth-effect spending among those with large investment portfolios.
Reliance on long-term interest rates
This policy framework is heavily reliant on longer-term interest rates, which the Fed cannot directly control through its overnight policy rate. It may therefore have to consider less conventional tools such as bond purchases. The Fed's most recent rate cut underscored this: while two-year Treasury yields fell in the days following the cut, both 10-year and 30-year yields actually rose during that period.
Currency debasement is a two-party game
Other countries may not play along with moves that benefit the U.S. to the detriment of overseas producers. Currency wars are potentially problematic across multiple dimensions of international trade and relationships, and the dollar's recent weakness suggests some of this dynamic is already in motion.
A hard limit exists
Absent negative interest rates—which carry their own set of problems—the Fed is stopped at the zero bound. Once it is reached, the U.S. will either have to generate true broad-based growth or face a potential reckoning. The longer the central bank remains in the business of asset price support, the more painful it will ultimately be to step back from that role.
Related challenges, shared burdens
As our team surveys the U.S. economic landscape, we see a series of interconnected challenges: debt growing at an unsustainable pace, a two-tier economy, and economic growth that appears increasingly dependent on a narrowing base of upper-income spending and a weaker dollar.
Most of the issues raised by this evolution are social and political in nature, but they pose genuine challenges for investors as well. A less resilient economy is more prone to shocks. Any social instability that results could also feed back to markets through populist programmes or policies designed to reward particular income segments at the expense of others.
"Ultimately, we believe these challenges can be overcome—but doing so will require a degree of political unity and rational discourse on burden sharing. If something cannot go on, it will not. The longer we wait, the more expensive the adjustment is likely to be."— Elizabeth Prasad, Portfolio Manager, Wealthy Asset Management
Neither Wealthy Asset Management GmbH nor its affiliates or employees provide legal, accounting, or tax advice. All legal, accounting, or tax decisions regarding your accounts and any transactions or investments entered into in relation to such accounts should be made in consultation with your independent advisors. No information provided by Wealthy Asset Management or its affiliates or employees should be construed as legal, accounting, or tax advice.
The views expressed herein reflect the opinions of Wealthy Asset Management as of the date of publication and are subject to change. References to specific securities, asset classes, or economic conditions are for illustrative purposes only and do not constitute investment recommendations. All data sourced from U.S. Bureau of Labor Statistics, Federal Reserve Bank of St. Louis, and Bloomberg as of January 2026.
This article was updated in January 2026.