Treasury Secretary Scott Bessent downplayed the impact of inflation on lower-income Americans, declaring this week that the “K-shaped” economy — shorthand for the divergent fortunes of the rich and poor — is a thing of the past.
The comments came at a moment when consumer sentiment remains low and voters continue to give President Trump negative marks on his handling of the economy. With midterm elections in just three months, Mr. Bessent has continually tried to talk up the economy. But despite promises of lower prices, the U.S. has continued to confront inflationary pressures that have been amplified by tariffs and the war in Iran, which has increased the cost of gasoline.
Mr. Bessent suggested that those economic concerns are overblown.
“I got sick of hearing about this K-shaped economy,” Mr. Bessent said on CNBC on Tuesday. “I can say here definitively, the K-shaped economy is over.”
The Treasury secretary said that the economy is now no longer K-shaped but is forming the letter “C” — with wage gains among the bottom quarter of earners starting to outpace gains among the top fourth of earners. Dismissing downbeat consumer sentiment as a function of misinformation about the economy, Mr. Bessent said that Americans would soon start experiencing relief as a result of the tax cuts that Republicans enacted last year, a message he and other administration officials have been delivering for months.
The Treasury Department did not respond to a request for comment explaining which set of wage data Mr. Bessent was referring to. However, the U.S. economy has for years confronted historically high levels of wealth inequality that will not easily be reversed by small improvements to wage growth at the bottom of the income scale.
This week the S&P 500 hit a record high — a boon to investors and corporate America that Mr. Trump hailed on Wednesday during a speech in Nevada.
“The stock market has set 74 all-time highs just since our short time that we’ve been back,” Mr. Trump said of his second term. “The typical American 401(k) is up much more than $30,000 and setting records day after day, week after week.”
Yet consumers remain on edge and the Trump administration risks making the same political mistake that the Biden administration made by downplaying concerns about inflation and the cost of living.
The war with Iran has slowed the economy this year and Mr. Trump has not delivered on his promise to lower prices. On an annual basis, inflation is up 3.7 percent, well above the central bank’s long-term target of 2 percent. Inflation in the second quarter was especially high.
Rising prices, particularly for gasoline, hurt low-income households the most. At the same time, signs of economic strength such as the surging stock market tend to enrich wealthy investors.
While wages are an indication of the trajectory of the economy, many economists look at consumption data and other measures to illustrate how Americans are faring.
A Moody’s Analytics analysis in June argued that the K-shaped economy is firmly intact because the top 20 percent of earners accounted for nearly 60 percent of spending, outpacing inflation, in the first quarter of this year. Spending by the bottom 80 percent fell short of inflation.
“No wonder most Americans are upset with their financial situations and the broader economy,” said Mark Zandi chief economist of Moody’s Analytics.
Although some analysts contend that Mr. Zandi’s methodology exaggerates the spending gap, other studies confirm the overall picture that the K-shaped gap between the richest and the poorest remains intact.
A report by the Bank of America Institute, which relies on customer deposit account data, found that after-tax wage growth in April increased 6 percent compared to the same month a year earlier. That was the highest rate of growth since 2021. With wage growth for low-income earners increasing by just 1.5 percent that month, the gap between the top and bottom ends of the income scale was the largest since 2015.
The National Retail Federation said last week that it was encouraged that spending among high and low-income earners on discretionary items, rather than nonessential staples, was holding up well in 2026 despite shaky consumer sentiment. However, the industry group expressed concern that the trend might not hold up for the rest of the year.
“As long as gas prices remain high, softening wage growth coupled with sticky inflation mean that the second half of the year might not be as rosy as the first half,” said Mark Mathews, chief economist at the National Retail Federation.
Mr. Bessent previewed the case that the Trump administration will be making to Americans this fall, highlighting the new measures that exempt taxes on tips and overtime for some workers and deductibility of auto loans. A steadying labor market has also improved the finances of many low and moderate-income households.
“We think that the American people will be feeling that over time,” Mr. Bessent said.
Although the provisions that Mr. Bessent mentioned are targeted at lower-income Americans, most of the 2025 tax law benefited corporations and the rich. According to the Tax Policy Center, nearly 60 percent of the tax benefits go to those with annual incomes of about $217,000 or more.
The post Bessent Declares Widening Gap Between Rich and Poor ‘Dead’ appeared first on New York Times.
