Jun 28, 2026
In the face of an increasingly K-shaped economy, businesses are abandoning middle-class buyers. Instead, they’re catering toward those who they know can pay for it.
In the June Federal Reserve Beige Book, the Federal Reserve Banks of New York, Cleveland, Richmond, and Atlanta all reported solid or increasing demand for luxury products, including luxury goods, travel, and real estate. Many of them also reported weakening markets for similar lower-end products.
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Because of that, luxury goods providers such as Rolex have been able to get away with raising their prices, even as middle-class customers increasingly abandon the brands. For Rolex, that’s because it’s successfully been able to pitch its products as investments, thanks to rising gold prices.
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But these price increases aren’t just impacting luxury goods. Everything from flights to animal care have seen similar pivots to luxury, leaving middle-class households increasingly stranded.
“Companies are saying, ‘Let’s just jack up the price as high as we possibly can and extract as much from the small set of wealthy people,’” says former U.S. Department of Treasury director Kitty Richards.
Here’s what’s being impacted by what the Fed calls “unapologetic luxury,” and what that means for the people who are left behind.
Luxury goods and service prices are increasing, and so are non-luxury goods and services
Many companies who are increasing prices already cater to a wealthy clientele, such as Rolex and Cartier.
Indeed, jewelry prices as a whole have increased dramatically. As the price of precious metals has skyrocketed, jewelers have been forced to increase their prices, and have been met with wealthy investors hoping to use the jewelry as an investment.
“Brands and retailers who cater to a higher-end clientele are doing quite well,” says Abe Sherman, chief executive of California-based jewelry consulting firm Buyers Intelligence Group. “There is a clear trend toward higher price points.”
Pet wellness is trending upward, too. High-income pet owners are paying as much as $14,000 per year on dog grooming, giving their pets peptides and treating them to fur-brightening masks. They’re also having to deal with mounting vet costs at the same time.
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But not every market facing a similar problem is luxury-only: Flights have also been getting more expensive. Faced with increasing oil costs due to the Iran War, flights have had to raise prices — or fold like Spirit Airlines. As a result, ticket prices are up 25%. Car prices are also up across both the new and used market.
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The middle class is “squeezing more life out of every dollar”
With the cost of everything increasing, the middle class is having to pick and choose what it can pay for.
In the June Beige Book, one of the Kansas Fed’s contacts said that “middle-income households are squeezing more life out of every dollar before deciding to spend it,” resulting in what the Kansas Fed calls “growing behavioral adjustments.”
This includes things like skipping restaurants. And when residents do go out to eat, they go for less expensive meals.
“In contrast, higher-income households remained largely insensitive to price pressures,” the Kansas Fed said.
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The Atlanta Fed also noted “growing financial stress among middle-class households, particularly those who do not qualify for public assistance or are unfamiliar with available support resources.”
This indicates a K-shaped economy, where economic conditions cause upper-class people to do very well while lower-class people are increasingly struggling.
“When people talk about the K-shaped economy, they’re talking about an economy that is being experienced very differently across the population,” says Joanne Hsu, the director of the Consumer Sentiment Index at the University of Michigan.
A K-shaped economy isn’t necessarily sustainable. If the lower half of a K-shaped economy is unable to pay for their necessities, they could start defaulting on loans at higher rates. But as long as wealthy consumers keep spending, businesses have little reason to change course.
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Kit Pulliam is a DC-based financial journalist with over five years of experience writing, editing, and fact-checking financial content.
