U.S. Federal Reserve Chair Jerome Powell on Wednesday confirmed that a “K-shaped economy” appeared to be developing in the U.S. and questioned whether it was “sustainable.”
The “K-shaped economy” concept expresses the idea that wealthier Americans have enjoyed boom times owing to inflation in their financial and property assets, while poorer Americans are hurt by price inflation in consumer staples such as food and energy. The result can be seen in charts in which a downward curve shows the variables associated with low-income activity and an upward curve charts the fortunes of the wealthy, forming a “K” shape.
At the Fed’s rate-setting meeting on Wednesday, Powell was asked this question by Christine Romans of NBC News: “I wanted to ask you about how the higher-income households are really driving spending right now that are backed by home equity and stock market wealth, but lower-income consumers are really struggling with the accumulation of five years now of rising prices. It’s price levels, not really the inflation rate, holding some of these families back. How sustainable is this so-called K-shaped economy?”
Powell twice said he wasn’t sure it was sustainable. He began by admitting that the K-shaped economy concept was “clearly a thing” that the Fed was seeing in its data:
