Bessent: K-Shaped Economy Is “Definitively” Over

Treasury Secretary Scott Bessent went on CNBC and drew a line in the sand on the inequality debate. “I got sick of hearing about this K-shaped economy,” Bessent said, adding, “I can say here definitively, the K-shaped economy is over.”

What Bessent actually said

Bessent argued the U.S. is now in a “C economy” where the lower end of wage earners are catching up, just like they did in President Trump’s first term. He pointed to wage gains at the bottom of the distribution as evidence.

The Treasury Secretary cited a 2% real wage gain for the bottom 25% of workers, a figure that appears to reference Treasury data showing blue-collar worker wage growth of 1.7% during the first five months of the Trump administration in 2025. He also credited the One Big Beautiful Bill Act, which eliminated taxes on tips and overtime and reduced taxes on Social Security benefits for seniors.

The data pushes back

“The K-shaped economy remains firmly intact,” Moody’s Analytics chief economist Mark Zandi recently wrote, citing Federal Reserve data showing outlays by those earning $200,000 a year or more grew by an estimated 6.5% in the year ending Q1 2026, nearly 4% in real terms.

The Federal Reserve Bank of Atlanta’s 12-month moving average of wage growth by income quartile showed the lowest quartile at 3.6% growth in June while the top 25% saw 3.9%, and at no point in 2026 has median wage growth for the bottom percentile exceeded that of the top.

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Where some cracks are closing

Bank of America has observed that some elements of the K-shaped economy are beginning to close, with chief U.S. economist Aditya Bhave writing that consumer spending excluding gas ceased to be K-shaped on a year-over-year basis, citing stronger job growth, lower tax withholding, June’s drop in gas prices, and a favorable base effect.

Still, current drivers of wealth gains, notably equities courtesy of the AI boom, are concentrated among higher earners. That keeps the top of the K well-fed even as the bottom nudges up.

Why traders should care

The Treasury’s messaging matters for policy signaling into midterms and for how the administration frames tariffs, tax cuts, and consumer resilience. If the bottom quartile really is accelerating, discretionary and value-tier consumer names benefit; if Zandi and the Atlanta Fed are right, the barbell trade stays intact.

Watch for divergence in retailer commentary between mass-market and premium in upcoming earnings prints.

Options market and stocks to watch

Watch WMT and DG as barometers for whether lower-income spending is actually firming up. Watch LULU and RH for the top-of-the-K premium consumer read. Watch XRT for a broad retail tape reaction if wage-growth data shifts the narrative.

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