Bessent says K-shaped economy is ‘over’

Business Bessent says K-shaped economy is ‘over’ Comments: by Andrew Dorn - 08/08/26 1:54 PM ET Comments: Link copied by Andrew Dorn - 08/08/26 1:54 PM ET Comments: Link copied

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(NewsNation) — Treasury Secretary Scott Bessent says the “K-shaped” economy has come to an end, arguing lower-income Americans are beginning to regain ground.

“I can say here definitively, the K-shaped economy is over,” Bessent said in an interview with CNBC’s “Squawk Box” earlier this week.

The letter “K” has become shorthand for the diverging economic fortunes of higher- and lower-income Americans in recent years, reflected in everything from wealth accumulation to spending patterns.

The Treasury chief, however, maintains that the K-shaped era is over and says a “C-economy” is emerging, “where the lower-end of wage earners are finally clawing it back, just like they did in President Trump’s first term.”

To support his argument, the treasury secretary pointed to Bureau of Labor Statistics data showing pay grew faster for lower earners than for higher earners in the second quarter.

The data showed weekly earnings for full-time workers at the 25th percentile rose 5.5 percent from a year earlier, compared with 1.5 percent for those at the 75th percentile.

But Bessent’s figures don’t account for inflation. Consumer prices rose 3.9 percent over the same period, eating into workers’ wage gains.

Stubborn inflation is one reason many consumers remain sour on the economy despite a surging stock market, lower unemployment and larger tax refunds.

In January, annual inflation had cooled to 2.4 percent. But the war in Iran sent shock waves through energy markets, helping accelerate inflation to 4.2 percent in May, its fastest annual pace since 2023.

The spike in gas prices became another example of the “K-shaped” split, as lower-income households cut back on consumption while wealthier households were largely undeterred.

As recently as June, Moody’s Analytics chief economist Mark Zandi declared the K-shaped economy “firmly intact,” arguing that the top 20 percent of the income distribution — those making more than $175,000 a year — continue to drive the economy.

At the same time, the picture has become more nuanced.

“The K-shape persists, but lower-income consumers have increased their spending versus last year,” Mark Matthews, chief economist at the National Retail Federation, wrote in a recent analysis.

Among 6 of the bottom 8 spending deciles, discretionary spending outpaced spending on staples, suggesting consumers “seem to be willing to focus more of their spending on the things they want rather than the things they need,” Matthews added.

Whether that signals the end of the K-shaped economy, as Bessent argues, or simply a less pronounced version of it remains an open question.

Matthews cautioned that “softening wage growth” coupled with “sticky inflation” means the second half of the year may not be as rosy as the first.

If consumer sentiment is any guide, many Americans didn’t find the first half especially rosy either.