Responding to reporters at the press conference following last week’s decision to lower the target range of the federal funds rate by 25 basis points for the second consecutive month, Federal Reserve Chair Jerome Powell confirmed a growing divide in consumer spending.

“If you listen to the earnings calls or the reports of big, public, consumer-facing companies, many, many of them are saying that there’s a bifurcated economy,” said Powell, noting that “consumers at the lower end are struggling and buying less and shifting to lower-cost products.”

At the opposite end of the spectrum, high-income earners keep outperforming. Market watchers have described this reality as a “K-shaped economy” — each spur representing consumers’ diverging economic fortunes.

And, after consecutive meetings of the Fed’s rate-setting body, reporters asked Powell if the central bank’s monetary policy is responding to the trend.

“Much, much anecdotal data on that,” he said last week, “and so we think there’s something there,” noting that policymakers are watching the trend carefully.

Recent patterns in consumer credit risk offer a glimpse into how the gap is widening between those spenders exhibiting heightened financial resilience, and those displaying mounting financial challenges.

According to the credit rating agency TransUnion, from the third quarter of 2019 to the third quarter of 2025, the percentage of individuals in the lowest risk, “super prime” credit tier increased from 37.1% to 40.9%, with 16 million people migrating into the stronger bracket.

Concurrently, the subprime segment — which shrank notably during 2020 and 2021 as pandemic-related stimulus enabled many consumers to build savings, pay down debt and reduce credit account delinquencies — has returned to pre-pandemic levels.

“We are seeing a divergence in consumer credit risk, with more individuals moving toward either end of the credit risk spectrum,” said Jason Laky, executive vice president and head of financial services at the credit ratings agency TransUnion, commenting on the firm’s newly published Credit Industry Insights Report with second- and third-quarter data.

The report indicates the trend appears clearest across the credit card segment and auto lending. Annual growth in new account originations and total balances was strongest in the super prime and subprime tiers, “far outpacing all others,” TransUnion reports.

In credit card lending, new second-quarter originations rose 9.4% among super prime borrowers and 21.1% among subprime borrowers from the same period in 2024, compared to 5.1%, 0.9% and 5.4% among prime plus, prime and near prime borrowers, respectively.

Average new account credit lines declined 1.6% annually across credit risk tiers, however, with new lines for subprime borrowers falling 5%, suggesting how lenders are managing diverging credit trends through smaller credit limits.

Meanwhile, the number of consumers carrying an outstanding credit card balance month to month rose annually by nearly 2%, from 171.4 million to 174.8 million. The average credit card debt per borrower rose 2.25% annually, to $6,523 from $6,380 a year ago.

The effects of the K-shaped economy emerged in unsecured personal loan credit trends, too.

Subprime and near prime borrowers led a 26% annual increase in originations in the second quarter, rising 35% and 26%, respectively, but the growth in personal loan balances, which increased 8% over the year, was driven by super prime borrowers rising 11%.

On the mortgage side, TransUnion reports that mortgage originations rose 8.8% in the second quarter, mainly driven by refinance volumes that rose 101% annually in the rate-and-term segment and 23% for cash-outs.

In the third quarter, TransUnion observed rising mortgage delinquencies as the consumer-level 60-day delinquency rate increased to 1.36% from 1.24% the year prior, led by challenges among government borrowers with loans insured by the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA).

VA delinquencies rose 35% in the third quarter, while FHA share of 19.4% of total originations remained above pre-pandemic norms of around 16% to 17%.

Satyan Merchant, automotive and mortgage business leader at TransUnion, said that as mortgage rates fall, easing affordability conditions for some borrowers, “rising delinquency rates — particularly within certain borrower segments — underscore the importance of maintaining a vigilant and proactive approach to risk monitoring and portfolio management.”