K, C or E? The Alphabet-Soup Battle Over the True Shape of the American Economy

C. K. E. Strung together, those letters look like somebody's initials or the name of a college fraternity. In 2026, however, they have become shorthand for one of the most contested arguments in American economics: what shape does the expansion of the United States economy actually have? Since the recovery from the pandemic began, economists have largely viewed the economy as acting in a K-shape, displaying an unequal expansion across groups, with the two arms of the letter heading in opposite directions — households at the top pulling further ahead while those at the bottom fall further behind. That consensus has now lifted.

As CNBC reported on 29 August 2026, letters like C and E are now floating around academic circles and Wall Street trading rooms alike, and economists, corporate leaders and politicians are openly competing to define the current economic moment. 'This is some of the alphabet soup,' Joel Mokyr, a Nobel Prize-winning economic historian at Northwestern University, told the network. The race to label the structure of today's economy involves more than semantics or bragging rights: in recent years, the divergence among low- and high-income consumers, expressed in the idea of a K-shaped economy, has been top of mind for politicians, monetary policymakers and executives of consumer companies. Which letter wins shapes how policymakers judge the health of the recovery, how brands price and position their products, and how voters perceive their own fortunes heading into a midterm election cycle in which the cost of living is emerging as a defining issue.

A short history of letter-shaped economics

For decades, letter shapes have been used to sum up the economy, especially following major downturns. The list of those used throughout history includes V-, L- and W-shaped recoveries. Each letter encodes a compact theory of the path ahead: a V promises a sharp fall followed by an equally sharp rebound; an L warns of a collapse into stagnation; a W describes a double dip, a recovery that fails and relapses. The letters endure because they translate complicated macroeconomic dynamics into a single visual intuition that anyone can hold in their head — and because journalists, investors and policymakers all need a fast way to say what kind of recovery they believe in.

What makes the current debate unusual is its timing. According to Don Rissmiller, chief economist at research firm Baird Strategas, it is uncommon for this type of description to have staying power among everyday Americans several years after a recession, as it does today. 'During recessions and recoveries, the letters are really popular,' Rissmiller said. 'To use a letter in the middle of a business cycle, I guess we could say that's a little new.' Mounting concerns around wealth inequality may be driving the heightened awareness, he suggested.

That observation deserves emphasis. Letters like V and W describe the trajectory of the economy as a whole — its speed and direction. The K, by contrast, is not really about the aggregate path at all: it is about distribution, about who inside the economy is rising and who is falling while the average holds steady. The fact that a distributional letter has survived years into the business cycle says something important about the mood of the country: for many Americans, the question that defines this economy is not how fast it is growing but who is sharing in the growth. The alphabet debate, in that sense, is a symptom of an expansion that no longer feels uniform to the people living inside it — and of a political system that has noticed.

The K-shaped consensus and the evidence behind it

Since the pandemic, the K has been the default frame, and its power lies in its description of a two-speed reality: asset owners and high earners rode the upper arm higher, while lower-income households along the lower arm absorbed inflation, debt and precarious work. The K-shaped reading stayed top of mind for politicians, monetary policymakers and executives precisely because it implies that aggregate statistics — growth, employment, even average wages — can look acceptable while large parts of the population experience something closer to a personal recession.

The freshest evidence for the K comes from household balance sheets. Researchers at the New York Federal Reserve said their latest research into credit card debt showed the K-shaped economy continues to dominate as an economic theme. Combined credit card balances of a near-record $1.26 trillion in the second quarter are evidence, in their framing, that 'there are a lot of households that live paycheck to paycheck.' An economy carrying that much revolving debt at a near-record level is one in which the lower arm of the K is still very much in place: households borrowing to bridge the gap between pay and prices.

Yet the data story is more complicated than a simple divergence. According to a report from a team at the Federal Reserve Bank of Richmond published in July, income growth did not appear to show a K-shaped divergence among different income groups between 2021 and 2023 — but consumption did reflect a clear break. In other words, the split showed up first in how people spent, not in what they earned. That distinction matters analytically: it suggests the K may be as much about confidence, wealth and access to credit as about paycheques, and it gives both sides of the current debate a factual foothold. The three letters now in circulation can be summarised as follows:

• K-shaped: an unequal expansion in which higher- and lower-income groups move in opposite directions — the upper arm rising while the lower arm falls.
• C-shaped: a recovery in which the bottom class of consumers gains ground and the two ends of the class spectrum begin to converge.
• E-shaped: an economy of three distinct classes running on parallel but unequal tracks — neither moving farther apart nor converging.

The C-shape challenge: from the Treasury to hotel lobbies

The most consequential challenge to the K came from inside the administration. Treasury Secretary Scott Bessent made waves earlier in August when he declared that the K-shaped economy was in the rearview mirror. In its place, the former hedge fund manager said, a C-shaped economy was forming, meaning that the bottom class of consumers were gaining ground.

Bessent cited wage gains among lower-earners and larger tax cuts this year, pointing to President Donald Trump's 'no tax on tips' and 'no tax on overtime' policies as boosting the worst-off. 'I got sick of hearing about this K-shaped economy,' Bessent, one of Trump's top economic lieutenants, told CNBC this month. 'I can say here definitively, the K-shaped economy is over.' It is worth noting who is making the claim: the country's most senior economic spokesman, in a political season where the cost of living is shaping up as a defining issue. Declaring the K dead is not only an analytical statement; it is also a message to voters that the administration believes the recovery is broadening.

Bessent isn't the only one giving the C letter air time. Hilton Worldwide CEO Christopher Nassetta told analysts in late July that his hotel company is 'definitely seeing' a C-shaped economy. Weakness in high incomes isn't driving the convergence between the two ends of the class spectrum, Nassetta said. Instead, the chief executive said Hilton's middle- and upper-middle segments have swung from posting negative numbers to growing at rates as high as 6%. 'The middle class is getting back in the game,' Nassetta said. 'It's really impossible to deny.'

The spending data offers at least partial support. The Bank of America Institute said that while higher earners had been spending more using credit cards, the gap across income classes began narrowing in May of this year. 'What was once a K-shaped consumer is increasingly becoming one of convergence,' David Michael Tinsley, the institute's senior economist, wrote to clients. If the C-shape is real, the implications run deep: a convergence driven by the bottom catching up — rather than the top weakening — would mean the expansion is finally broadening. For policymakers it would reduce the urgency of distribution-targeted intervention; for consumer companies it would reopen the vast middle of the market as a growth engine; for politicians it would offer evidence that wage and tax policy is delivering for the worst-off.

The sceptics: why the K may still be writing the story

Anthony Chan, JPMorgan's former chief economist, argues that geopolitics throws a wrench into this emergent view: the war between the United States and Iran. Lower-income consumers spend more of their incomes on energy, he noted, meaning they are affected more by surging gas prices as the conflict threatens to keep inflation high. That should mitigate any gains for lower-income Americans from White House efforts to increase tax refunds or make homes more affordable, he said.

'I'm the first to say that we can make some progress,' Chan said. 'But nothing of the sort of progress that we can say we can bury the K-shaped economy.' In his reading, it is hard to argue that the K-shaped economy has faded so long as consumer sentiment remains weak and the cost of living shapes up as a defining issue in the midterm election cycle.

The sentiment data backs the sceptics. Consumer sentiment dropped 11% in August from a year ago and recently neared record lows set earlier this year, according to the University of Michigan's closely followed survey released on Friday. Confidence among low- and middle-income respondents took an outsized hit this month, said Joanne Hsu, the survey's director. A K-shaped economy is, among other things, a state of mind: when the bottom and the middle of the income distribution lose confidence faster than the top, the psychological arms of the K spread even if spending momentarily converges.

Leaders at several consumer companies said they still see signs of a K economy. 'The dynamic of a K-shaped economy we see is alive and well in the United States,' said Shane Grant, Colgate-Palmolive's operations chief for the Americas, at a Deutsche Bank consumer conference in June. Bill Boltz, a merchandising executive at Lowe's, said last week on the home retailer's earnings call that the K-shaped economy is one variable that 'continues to shape' consumer spending trends. And Nicholas Fink, CEO at Constellation Brands, maker of Modelo beer and Robert Mondavi wine, told analysts last month the economy even looks 'increasingly' like a K.

Note the emerging pattern in who says what. The C case is advanced by the Treasury Secretary and by hotel operators whose middle-tier segments are recovering; the K case is defended by survey data, credit-card statistics and companies selling everyday essentials — toothpaste, home improvement goods, beer. Both vantage points are real, and both are self-selecting: a hotelier sees the returning middle-class traveller, while a consumer-goods executive sees the shopper still trading down. The disagreement is less about the data than about which slice of it deserves the letter.

The E-shape: three parallel tracks

A third camp wonders whether the economy has evolved into an E-shape after more than half a decade in a K-shape. In this view, three distinct classes of Americans are neither moving farther apart nor converging; each horizontal bar of the E is a separate income track with its own logic. In other words: 'Each group has found a way to live,' said Rissmiller of Baird Strategas. 'It may not be the best outcome,' he added. 'But it is an outcome that looks more stable than not.'

Michael Eisenband, global chairman of corporate finance at FTI Consulting, recently said in a client note that the E-shaped assessment 'better illustrates' clearly divergent spending patterns among different income groups. The E can serve as a 'more fitting depiction of the times,' he argued — a formulation that concedes the central point of the E camp: the divergence is no longer an emergency but a structure.

Heather Long, chief economist at Navy Federal Credit Union, said an E-shaped description of the economy may be more accurate than a K because it better captures a middle class that is just hanging on. A view that low- and high-earners are somehow converging requires 'some real mental gymnastics,' she said. That is a direct challenge to the C narrative: in the E reading, the middle isn't getting back in the game so much as learning to survive it — adjusting budgets, expectations and debt to a permanent position between the two extremes.

Even executives who see improving conditions are hedging their letters. Wyndham Hotels & Resorts CEO Geoff Ballotti told analysts on an earnings call earlier this year that while its middle-tier consumer is 'feeling better' and 'regaining confidence in purchasing power,' that might reflect either a C- or E-shaped economy. And for other executives, an E-shaped economy — three income groups on parallel but unequal tracks — remains an alien concept for now. Scott Thompson, CEO of Somnigroup International, admitted to being out of the loop when asked about an E-shaped analysis on the Tempur-Pedic mattress maker's earnings call this month. 'That's a new one for me,' Thompson said. 'I was ready for K; hadn't thought about E.'

Thompson's candour is revealing. The K took years to migrate from academic papers and Fed research into earnings-call vocabulary; the E has not yet made that journey. Yet the E may be the most analytically honest of the three letters, because it refuses the implicit moral of the other two. The K implies a problem — divergence; the C implies a resolution — convergence. The E implies something more uncomfortable and possibly more durable: a settled stratification, in which each class has adjusted its consumption, its aspirations and its borrowing to a fixed rung of the ladder. Stability, in that reading, is not the same as health; it is equilibrium at unequal heights.

What the alphabet fight really signals

Strip away the letters and the debate reduces to a handful of questions that only time can answer. Is the narrowing of the spending gap that the Bank of America Institute observed from May a trend or a blip — and will the near-record $1.26 trillion in credit card balances flagged by the New York Fed keep rising alongside it? Do the policy levers Bessent cites — wage gains among lower earners, 'no tax on tips,' 'no tax on overtime,' larger refunds — deliver durable income growth, or are they being cancelled out by the energy-price shock that Chan attributes to the Iran conflict? And what does the middle class actually feel, given that the University of Michigan survey still reports sentiment down 11% year on year in August and near record lows, while Hilton and Wyndham report the middle spending again?

Until the survey data and the sales data tell the same story, every letter will have its witnesses. What is already clear is that the labels have consequences. For monetary policymakers, a C-shaped economy argues for patience, while a persistently K-shaped one raises questions about who tightening actually bites. For politicians in a midterm cycle, declaring the K dead is itself a political act — which is exactly why Bessent's declaration made waves and why Chan and others pushed back within days. For executives, the letter determines strategy: whether to trade up, trade down, or — as the E reading implies — hold three separate product ladders for three separate customer tracks.

Rissmiller's observation frames the whole dispute. Using a letter in the middle of a business cycle is, by his admission, a little new. Letters are supposed to describe the arc of crises; that Americans are still debating shapes years into an expansion is itself evidence that the experience of this economy remains fractured across income lines. Whether the final answer is C, K or E — or whether next year brings a fresh letter altogether — the alphabet will keep growing as long as the aggregate numbers and the household experience refuse to agree. For now, the soup is still boiling, and every spoonful tastes different depending on where in the economy you are standing.