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Federal Reserve Chair Jerome Powell has signaled that the Fed may soon cut interest rates to support the slowing U.S. economy. Economic growth has dropped from 2.5% last year to just 1.2%, raising fears of rising unemployment as companies pull back on hiring. At the same time, inflation remains stubbornly high, with consumer prices rising 2.7% overall and core inflation (which excludes food and energy) at 3.1%. New tariffs and global tensions are making goods more expensive, adding to the pressure on both households and businesses. As political pressure builds, Powell is trying to balance fighting inflation with keeping the economy from slipping into a deeper slowdown.

As inflation remains high and new tariffs increase the cost of goods, many Americans are cutting back on non-essential spending. Major retailers like Walmart and Target are seeing different results in this changing environment. Walmart’s sales went up by nearly 5% because more shoppers are focusing on buying affordable, everyday items like groceries and household essentials. Meanwhile, Target’s same-store sales dropped by over 3%, as people are spending less on non-necessary items such as home goods and clothing. Families are becoming more careful with their money due to rising prices, government trade policies, and overall economic uncertainty. These shifts show how economic pressure is affecting the way people shop and prioritize their spending.

Recent earnings reports from major retailers like Walmart, Home Depot, and Target show how Americans are changing the way they spend money during tough economic times. With inflation still high, old tariffs still in place, and the Federal Reserve’s decision-making unclear, shoppers are making more careful choices. Walmart is doing well by using technology like AI to keep prices low and keep sales growing, even while import costs rise. Home Depot’s steady performance shows people are still spending on home repairs, though the housing market affects their business. On the other hand, Target is struggling, as families cut back on non-essential shopping. All three companies give us a clearer picture of how people are rethinking their spending due to today’s financial challenges.

In July 2025, inflation in the U.S. rose more than expected, putting pressure on both families and the Federal Reserve. The Consumer Price Index (CPI), which tracks how prices change over time, showed that core inflation—excluding food and energy—went up by 3.1% compared to last year. Prices for services like healthcare, car repairs, and natural gas jumped, making it more expensive for people to manage everyday needs. Even though gas and fuel oil prices dropped, it wasn’t enough to stop overall inflation from rising. This puts the Federal Reserve in a tough spot: it wants to lower interest rates to help the economy, but doing so could make inflation worse. With economic uncertainty and tight household budgets, both policymakers and consumers are facing hard choices ahead.

In July 2025, both consumer and producer prices in the U.S. rose more than expected, mainly due to higher costs for services like dental care and air travel. This surprised many experts because earlier in the year, falling prices for goods had helped keep overall inflation in check. At the same time, job growth slowed down, suggesting the economy might be cooling off. This puts the Federal Reserve in a tough spot—it needs to fight inflation by possibly raising interest rates, but doing so could hurt job growth even more. Despite these worries, many investors still believe the Fed will lower interest rates in September to help support the economy.

In recent years, the gap between how wealthy and average Americans spend their money has grown significantly. The richest 10% of people now account for about half of all the money spent on consumer goods in the U.S. While everyday families have tried to keep up by spending more—mainly due to rising prices—their incomes haven’t grown much. In contrast, wealthier households are spending far more, often on luxury goods and high-end services. As a result, many companies are focusing more on expensive products that appeal to these top earners. This shift is making life harder for the average consumer, especially as inflation, high interest rates, and slow wage growth continue to stretch household budgets.