A senior Federal Reserve official has warned that worsening financial struggles among low-income Americans could push the world's largest economy toward recession, highlighting the "balancing act" policymakers face when considering another rate cut in December.

New York Fed President John Williams noted that data and community discussions reveal many impoverished households are grappling with affordability crises. "Substantial evidence shows...middle- and lower-income families face multiple constraints from a purchasing power perspective," Williams stated, citing living costs, housing expenses, and paycheck-to-paycheck realities. Meanwhile, wealthier Americans benefit from stocks hovering near record highs.

With the US labor market cooling, Williams suggested this household "bifurcation" may become pivotal in his December rate cut decision - describing the vote as a "balancing act." While overall economic resilience exceeds expectations and inflation remains above the Fed's 2% target, financial pain among vulnerable families risks derailing growth. "Certain events could shake confidence, or the aggregate consumer spending growth we're seeing might prove weaker than expected - many are truly living month-to-month," explained Williams, who also serves as vice chair of the rate-setting FOMC.

Fed officials including Chair Jerome Powell and influential Governor Christopher Waller are increasingly examining how what Williams calls a lack of "strong momentum" in employment affects average Americans' economic outlook. Powell and Waller note current robust spending primarily stems from top earners.

This income divide is influencing politics, propelling cost-of-living-focused candidates like Zohran Mamdani in New York's mayoral race. Poor performances by Trump-backed candidates in recent elections have been linked to affordability crises mirroring challenges during Biden's presidency.

The Fed has cut rates by 25 basis points at its last two meetings amid labor market softening. While investors anticipated another December cut, Powell recently stated further easing is far from "a foregone conclusion."

"This truly is a balancing act," Williams said regarding the December decision. "The reality is - inflation remains high without clear signs of abating, while the economy shows notable resilience." Though the job market keeps "gradually cooling," there's no "sharp deterioration." Unlike early this year, "nobody's really talking about recession now" as the economy outperforms expectations - including Williams' April prediction that Trump's tariffs might push inflation to 4% with growth "slightly below 1%."

Renewed confidence stems partly from AI investment optimism replacing trade war fears. Williams called productivity-boost predictions from AI "not absurd," but remained cautious about its actual impact. While AI-driven investments spur growth, soaring stock prices raise bubble concerns. "Will there be overinvestment? Will some companies succeed while others fail? Absolutely. But this reflects real, fundamental transformation," he said, unconcerned if projects are equity-funded rather than highly leveraged.

At October's meeting, the Fed announced it would end its three-year quantitative tightening experiment starting December 1 amid money market strains. Williams acknowledged recent funding pressures "clearly signaled reserve levels have declined," but rejected calls to accelerate the taper, calling the November timeline "perfectly reasonable."

He also opposed Dallas Fed President Lorie Logan's proposal to shift from federal funds rate targeting toward repo market borrowing costs. "We've thoroughly debated this multiple times during my FOMC tenure, always concluding the federal funds rate should remain our policy rate."

Regarding Powell's suggestion that government shutdown-induced data gaps might reduce cut likelihoods, Williams disagreed: "Regardless of shutdown status, we'll obtain sufficient information. Over a century of development has given us an exceptional US economic indicator system."