Despite a resilient labor market and steady GDP growth, a stark divide cuts through the American economy in 2025: only those earning over $200,000 a year and holding substantial investment portfolios feel financially secure, according to top economist Diane Swonk, chief economist at KPMG. While headline data portrays stability, Swonk warns that “the economy feels far better at the top than it does on Main Street.”
Her diagnosis is blunt—below the surface, financial strain is intensifying among middle- and lower-income households, who are contending with persistent inflation, rising debt costs, and weakening purchasing power.
A Slow Squeeze: Inflation Isn’t Gone—It Just Changed Shape
Official inflation has cooled from its peak, but Swonk describes today’s price pressures as “a creep instead of a surge.”Essentials—housing, food, energy, and medical services—continue to rise faster than wages for most households.
| Category | Annual Price Increase (Est. 2025) |
|---|---|
| Rent & Housing | 6.2% |
| Insurance (Auto/Home) | 11.5% |
| Food | 4.1% |
| Utilities | 3.6% |
| Childcare | 7.0% |
For families without assets, those increases are punishing. “Inflation lingers in categories people can’t escape,” Swonk notes. “It hits people who rent, people who commute, people who have kids—the very people who make up the backbone of the workforce.”
The Asset Divide
Swonk points to what she calls “the wealth buffer effect.” Those earning over $200,000 have been sheltered from much of the economic stress because they benefit from two protections:
- Homeownership – Wealthier households locked in low mortgage rates before interest surges.
- Stock Market Gains – The S&P 500 and tech-heavy benchmarks continue to soar, driven by AI-related growth and corporate earnings.
“As long as your portfolio is tied to AI stocks, defense, or energy—you feel optimistic,” Swonk says. “If you don’t own assets, you feel poorer every month.”
Middle America Is Losing Ground
The middle class is increasingly fragile:
- Consumer credit card debt has surpassed $1.4 trillion, hitting an all-time high.
- Auto loan delinquencies are at levels not seen since 2009.
- First-time homebuyers are effectively locked out as mortgage rates hover between 6.5–7.2%.
Median household income has barely edged higher in real terms over the past 18 months. But spending has. For many families, credit has become the bridge between paychecks and rising costs.
“It’s not that people are spending irresponsibly—it costs more just to exist,” Swonk says.
Uneven Confidence
Consumer confidence surveys show striking polarity. Households earning above $200,000 report that “now is a good time” to invest and borrow. Families below $75,000 overwhelmingly say they are falling behind.
| Income Group | Economic Confidence Trend |
|---|---|
| $200K+ | Rising |
| $100K–$200K | Neutral |
| $50K–$100K | Falling |
| Under $50K | Near recession levels |
Confidence now moves with wealth exposure, not wage growth.
The Mirage of a Strong Economy
Policymakers point to low unemployment and strong corporate earnings as proof of economic strength. Swonk argues those signals mask hidden weakness:
- Labor hoarding is keeping unemployment low, even as productivity slumps.
- Corporate investment favors automation and AI, not hiring.
- Small business optimism has fallen for nine straight months.
“We’ve entered a world,” she says, “where the economy can grow without broad-based prosperity.”
The Real Recession Risk
Swonk believes the U.S. may avoid a traditional recession in 2025 but face something harder to diagnose—a prosperity recession.
“We may grow, but most people may not feel it. That’s our real risk,” she warns.
She cites three vulnerabilities:
- Debt Shock – Rising refinancing costs may hit households and small businesses.
- Housing Trap – High rents and mortgage rates prevent mobility and spending.
- Demand Drag – Consumer fatigue may slow the economy more than Wall Street expects.
What Comes Next
Swonk argues that the U.S. economy is “at a breaking point of inequality.” Without policies to expand access to housing, education, and entrepreneurship, the divide between the asset-rich and asset-poor will widen.
“People keep saying the economy is strong,” she says. “But for millions of Americans, it doesn’t feel strong—it feels like survival.”
Economic pressures may not show up in headline GDP for months, but for most Americans, the downturn has already arrived. The question now: Can policymakers prevent this two-tier economy from becoming permanent?
