Treasury Secretary: 'K-shaped economy is over,' but data suggests otherwise

Treasury Secretary Scott Bessent has declared an end to the "K-shaped economy," a term describing disparate economic outcomes for different income groups. Bessent asserted in a CNBC interview that core inflation is slowing and that the economy is shifting towards a "C economy" where lower-wage earners are seeing gains, reminiscent of President Trump's first term.

These remarks come just three months before the November midterm elections. Bessent and the Trump administration have continued to defend the economic record, despite challenges such as elevated cost of living, higher gas prices, and increased food and utility costs, which have created an affordability crisis, particularly for lower and middle-income Americans.

Bessent told CNBC that "the media doesn't want to report it" but claimed the economy is performing better than perceived, citing "real wage gains" for working Americans. He specifically mentioned a "2% wage gain" for the bottom 25% of workers and highlighted the benefits of tax cuts, including the "Working Families Tax Cuts."

However, economists present a contrasting view. Mark Zandi, chief economist at Moody's Analytics, stated that the "K-shaped economy remains firmly intact." He cited Federal Reserve data showing that outlays by those earning $200,000 or more grew by an estimated 6.5% in real terms, while outlays by those in the bottom 80% remained unchanged after inflation.

Zandi argues that this persistent gap between high-earning and lower-income households, the hallmark of the K-shaped economy, helps explain why many Americans are unhappy with their financial situations. U.S. Bank chief economist Beth Ann Bovino added that the pandemic amplified these disparities, which stem from decades of underlying economic forces, further influenced by factors like higher interest rates, persistent inflation, and the rise of artificial intelligence.