The Blubber

The Philadelphia Fed's recent report, released earlier this month, caught wider attention after being spotlighted over the weekend by Torsten Sløk, chief economist at Apollo Global Management. In an analysis coauthored by Sløk, the firm warned that ongoing trade tensions—especially between the U.S. and China—could tip the economy into a recession by summer. A rise in consumer financial stress is already visible, with record-high rates of credit card accounts more than 90 days overdue.

“These patterns, combined with all-time highs in revolving credit balances, point to increasing strain on household finances,” wrote Jeremy Cohn and Brandon Goldstein of the Philly Fed.

Jay Hatfield, CEO of Infrastructure Capital Advisors, believes the economy is teetering on the edge of a downturn—one that could arrive quickly if the Federal Reserve doesn’t ease interest rates. Lower rates would not only stimulate broader economic activity, he argues, but also help ease the debt burdens many households face.

“You’re seeing the typical cycle unfold,” Hatfield told Fortune. “Capital investment slows, the job market softens, and household spending pulls back.”

Still, he doesn't expect consumer spending to collapse entirely—not even in a recession. As he put it, even if people are falling behind on paying off their credit cards, it means they’re still swiping them.

“As we like to say, consumers spend like woodchucks chuck wood,” Hatfield quipped, referencing the resilient nature of American consumption. “Lower-income groups have to keep spending, and wealthier ones still have the means and desire to do so.”

Of course, some of the rise in debt reflects seasonal behavior—holiday shopping always boosts balances. But the data makes clear that recent economic trends have widened the divide between the financial experiences of the wealthy and those of lower-income Americans.

Take credit access: The Philly Fed reported that lenders have increased limits for borrowers at the top end of the spectrum. The credit limits at the 90th percentile rose 5.4% over the past year—the third-largest annual jump in over a decade. Meanwhile, limits for median borrowers have held steady at around $5,000—effectively shrinking when adjusted for inflation.

A comparable pattern is evident in mortgage data. Since late 2019, home loans held on bank balance sheets have grown twice as quickly at the top end as they have at the median.

According to Hatfield, high earners benefited from pandemic-era inflation via rising home values and outsized gains in the stock market. For those further down the income ladder, the result has been quite different: persistently high prices and steep borrowing costs.

“Many households didn’t see any upside from inflation,” Hatfield said. “They just got crushed by it.”

Tariff Anxiety Adds to the Strain
This economic divide has helped fuel voter frustration—sentiment that some credit with returning Donald Trump to the presidency. But his renewed push for tariffs, aimed at reshaping global trade and generating government revenue, may ultimately backfire for the households hit hardest by inflation.

The Yale Budget Lab estimates that Trump’s proposed tariffs, as of mid-April, would amount to a $4,900 cost per household (adjusted to 2023 dollars). Tariffs function like a regressive tax, disproportionately burdening low-income families, who spend a greater share of their income on basic goods.

“This would just heap more pressure on struggling consumers, deepen economic risks, and could help tip the U.S. into a recession,” Hatfield warned.

Trump recently floated the idea that tariff revenues could replace income taxes for Americans earning under $200,000 a year—a proposal dismissed by economists and policy experts as unworkable. Even the center-right Tax Foundation has called the math impossible.

The White House did not respond to Fortune’s request for comment.

Meanwhile, public sentiment has taken a sharp hit. Consumer confidence has declined more rapidly over the last three months than during any similar stretch since 1990—including during the global financial crisis. Inflation expectations for the end of the year are now at their highest level since 1981, a time when inflation was only just beginning to cool after its historic surge.

Executives from companies such as Southwest Airlines, Chipotle, and PepsiCo have already said they’re feeling the effects of more cautious spending. And with a growing number of Americans struggling to pay down their credit card balances, the financial pressure on consumers shows no sign of letting up.