Is the K-Shaped Economy Nearing Its End? Finance Experts Weigh In

The K-shaped economy has become a common metaphor for a persistent and widening wealth gap: higher-income Americans continue to gain in wealth, spending power and financial stability, while many lower-income families fall behind.

Now, that pattern may be beginning to shift.

Treasury Secretary Scott Bessent told CNBC’s “Squawk Box” earlier this month, “I’m tired of hearing about this K-shaped economy. I can say definitively that the K-shaped economy is over.”

Bessent noted, “We’re seeing more of a ‘C’ economy, where lower-wage earners are finally catching up.”

What is a K-shaped economy?

The “shape” of the economy is a visual metaphor derived from the letter’s form.

In a K-shaped economy, a term that gained traction during the Covid‑19 pandemic, the two limbs of the K diverge, illustrating the differing trajectories of low‑ and high‑earning households.

Recent data indicate that the wage and spending gaps between higher‑income and lower‑income households are starting to narrow, resembling the converging arms of a “C”.

U.S. Treasury Secretary Scott Bessent speaks during a press conference to outline further sanctions against Iran, at the Treasury Department in Washington, D.C., U.S., Aug. 24, 2026.

Evelyn Hockstein | Reuters

This is significant because it could herald a shift in how economic growth is distributed, with gains potentially spreading more widely beyond the top tier.

For instance, lower‑income households experienced an average after‑tax wage growth of 5.2% in July, outpacing higher‑income households for the first time since December 2024, according to the Bank of America Institute.

The think tank also reported that debit and credit‑card spending converged across income groups last month.

Lower‑income household spending rose 5.4% year‑over‑year in July, buoyed by stronger after‑tax wage growth and surpassing the spending growth of middle‑income households, the Bank of America Institute noted.

Why all households are under financial pressure

However, economists caution that lower‑income consumers are not necessarily making headway, challenging the idea of a true departure from a K‑shaped economy.

For example, borrowers with low FICO scores—a key measure of consumer credit—are displaying increased signs of financial stress.

Ethan Dornhelm, FICO’s vice president of scores and predictive analytics, said, “For those with the lowest scores, we are seeing a modest rise in the 90‑day‑plus delinquency rate for mortgages and auto loans.”

I got sick of hearing about this K-shaped economy. I can say here definitively, the K-shaped economy is over.

Scott Bessent

Treasury Secretary

Economists note that many Americans across all income levels remain under financial pressure.

Even higher‑earning households are “curtailing some spending and becoming more selective about where they allocate their money,” according to Gregory Daco, chief economist at EY‑Parthenon.

While gas‑price anxieties have eased, housing affordability has become a major source of financial strain, J.D. Power reported. Housing costs have nearly overtaken gasoline as the second‑largest driver of financial stress, after food.

The average monthly mortgage payment for first‑time buyers reached $2,563, a 57% increase since April 2019—well above the 30% general inflation rate over the same period, according to FICO’s latest Credit Insights report.

FICO’s survey of 2,078 U.S. adults in July found that 43% of homeowners said their total monthly housing expenses made it harder to meet other costs.

Home affordability has declined since the start of the year, the Federal Reserve Bank of Atlanta reported. Affordability has been broadly constrained since 2022, when mortgage rates began a sharp rise.

Student‑loan repayment adds another layer of strain: 56% of borrowers reported that it forced them to rely more heavily on credit cards or other loans to cover bills over the past year, per the FICO report.

Could an X-shaped economy be on the horizon?

Other economists suggest the economy could be evolving into shapes beyond a “K” or a “C”.

An “E” shape, for instance, describes three tiers: high‑income households, a squeezed middle class, and a struggling lower tier.

An “X” shape could emerge next if lower‑income spending growth consistently outpaces that of higher‑income households, economists say.

David Tinsley, senior economist at the Bank of America Institute, noted, “There is a slight risk of an X developing here.”

He added, “It appears that lower‑income household spending growth could temporarily outstrip higher‑income growth, potentially marking a crossover.”

A stock‑market downturn could prompt higher‑income households—more likely to own equities—to curb spending, experts warn.

Daco of EY‑Parthenon warned that this dynamic “could become a key driver of slower consumer‑spending growth and an economy that may be stalling.”

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