President Donald Trump’s Treasury secretary is delivering an optimistic message about the U.S. economy, arguing that working Americans who have struggled with higher prices may finally be starting to regain financial ground.
Treasury Secretary Scott Bessent says the country is moving away from the so-called “K-shaped economy,” a term economists use to describe a situation in which higher-income households prosper while lower-income Americans face greater financial pressure.
Bessent believes that divide is beginning to narrow.
During an interview with CNBC’s “Squawk Box,” the Treasury secretary declared that the K-shaped economy has effectively come to an end.
His argument centers largely on recent wage data showing stronger pay growth among lower-income workers than among Americans higher up the earnings ladder.
For President Trump, that trend could become an important part of his economic message as his administration attempts to convince Americans that wages, jobs and household finances are moving in a better direction.
But one major challenge remains: inflation.
Bessent Says Working Americans Are Catching Up
For years, Americans have watched dramatically different economic realities unfold depending on income and wealth.
Higher-income households generally had greater financial cushions to withstand rising prices and were more likely to benefit from gains in stocks and other investments.
Working- and middle-class families often faced a different reality.
Higher grocery bills, gasoline prices, housing costs, insurance premiums and utility expenses placed additional pressure on household budgets.
That divide helped popularize the phrase “K-shaped economy.”
Bessent now argues that America is moving toward something different. He has described the emerging environment as a “C-economy,” in which lower-wage workers begin closing the financial gap.
According to Bessent, the improvement resembles economic trends seen during Trump’s first term, when wage gains among working-class Americans became an important part of the administration’s economic record.
New Wage Numbers Give Trump Administration Optimism
Bessent pointed to data from the Bureau of Labor Statistics to support his case.
The figures showed weekly earnings for full-time workers at the 25th percentile increased 5.5% compared with one year earlier.
Workers at the 75th percentile, meanwhile, experienced wage growth of approximately 1.5%.
The numbers suggest Americans toward the lower end of the wage scale recently experienced substantially faster pay growth than higher earners.
That could be welcome news for families who have spent years watching inflation eat away at their purchasing power.
But wage increases alone do not tell the entire story.
Inflation Is Still Eating Into Paychecks
The wage figures highlighted by Bessent are not adjusted for inflation.
Consumer prices increased 3.9% during the same period.
That means a worker receiving a substantial pay increase may still see much of that additional income consumed by higher everyday expenses.
This distinction could help explain why government economic statistics can look relatively strong while many Americans remain dissatisfied with their personal finances.
A rising paycheck is certainly positive. What ultimately matters to households, however, is how much that paycheck can actually buy.
If wages increase 5% while the cost of groceries, gasoline, housing, insurance and utilities also climbs rapidly, families may not feel significantly better off.
That purchasing-power question could become one of the most important economic issues facing the Trump administration.
Americans Are Still Worried About The Cost Of Living
There are several positive signals in the economy.
The stock market has performed strongly, unemployment remains relatively low, and many taxpayers have benefited from larger tax refunds.
Yet affordability remains a major concern.
For older Americans living on fixed or partially fixed incomes, families saving for retirement and working households trying to manage monthly expenses, inflation can have an immediate impact.
Food, energy, transportation, housing and insurance costs are difficult to avoid.
That is why falling inflation could be just as important politically and economically as rising wages.
Americans generally want to see their income increase, but they also want the dollars already in their bank accounts to retain their purchasing power.
Inflation Accelerated After Falling Earlier In The Year
At the beginning of the year, inflation appeared to be moving in a more favorable direction.
Annual inflation had fallen to 2.4% in January.
However, turmoil surrounding the conflict with Iran disrupted global energy markets and contributed to renewed price pressures.
Annual inflation subsequently climbed to 4.2% in May, its fastest pace since 2023.
Energy prices are particularly important because their effects can spread throughout the economy.
When gasoline and transportation costs increase, businesses can face higher expenses for shipping products, operating equipment and transporting workers.
Some of those costs can eventually reach consumers through higher prices.
Gas Prices Put Additional Pressure On Families
Gasoline prices provide another example of why economic conditions can affect households differently.
A family with a limited monthly budget may have little choice but to reduce spending elsewhere when the cost of filling the car increases.
Wealthier households generally have more flexibility.
That disparity has been one of the arguments used by economists who believe America’s K-shaped economy has not completely disappeared.
Moody’s Analytics chief economist Mark Zandi said as recently as June that the divide remained firmly in place.
Zandi has argued that the wealthiest 20% of Americans — including households earning more than $175,000 annually — continue to play an outsized role in driving consumer activity.
Those households are generally better positioned to absorb higher prices than Americans living paycheck to paycheck.
There Are Signs Lower-Income Consumers Are Improving
Other economic research paints a somewhat more encouraging picture.
National Retail Federation chief economist Mark Matthews recently reported that spending among lower-income consumers has increased compared with last year.
His analysis found that discretionary spending grew faster than spending on basic necessities among six of the bottom eight consumer spending groups.
That could be significant.
When households are under severe financial pressure, discretionary purchases are often among the first expenses they reduce.
Families concentrate their money on necessities such as housing, groceries, transportation and utilities.
An increase in discretionary spending could therefore indicate that at least some consumers are feeling more comfortable about their finances.
It does not necessarily prove that America’s economic divide has disappeared, but it adds another piece to an increasingly complicated economic picture.
Trump’s Economic Agenda Faces A Major Test
For Trump, Bessent’s argument could become especially important if lower-income wage growth continues.
The administration can point to stronger pay increases among working Americans as evidence that its economic policies are beginning to produce results.
But statistics alone are unlikely to settle the debate.
For most Americans, the economy is personal.
They measure economic success when they walk through the grocery store, pay their electric bill, renew an insurance policy, fill their vehicle with gasoline or look at their retirement savings.
That creates a straightforward test for the administration.
Are Americans able to buy more with their paychecks?
If wages continue climbing while inflation falls, the answer could increasingly become yes.
If inflation remains stubbornly high, however, families could continue feeling financially squeezed even as their incomes rise.
What Could Happen Next?
Economists remain divided over whether the K-shaped economy is actually ending or simply becoming less pronounced.
There are legitimate arguments on both sides.
Lower-wage workers are showing stronger wage gains, and some lower-income consumers appear more comfortable making discretionary purchases.
At the same time, inflation remains elevated and wealthier Americans continue to account for a substantial portion of consumer spending.
Matthews has also warned that softer wage growth combined with persistent inflation could make the second half of the year more challenging.
Consumer sentiment provides another reason for caution. Many Americans remain dissatisfied with economic conditions despite several positive headline indicators.
That leaves Trump and his economic team with an important challenge in the months ahead.
If the administration can combine stronger working-class wage growth with lower inflation, stable employment and greater purchasing power, Bessent’s optimistic assessment could become easier for Americans to see in their own finances.
If prices continue climbing rapidly, the economic debate is unlikely to disappear.
Ultimately, Americans do not need an economist to tell them whether their financial situation is improving.
They can see it in their bank accounts, retirement savings and monthly household budgets.
And for the Trump administration, delivering noticeable improvement in those areas may be the economic promise that matters most.