The American economy is tipping away from low-wage workers once again. PATRICK T. FALLON/AFP via Getty Images The K-shaped economy has returned, with gaps widening between high and low-income Americans. Higher earners see steadier opportunities, while lower-income households face cooler prospects. Some economists are warning that this uneven growth could threaten economic stability in 2026. The post-pandemic era marked by growing wages and opportunities for lower-income Americans has flipped around. The K-shaped economy is back, and it could mean more trouble in 2026. For higher earners, economic outcomes and opportunities are chugging along, albeit perhaps a bit muted than during the boom labor market of a few years ago. For those at the bottom, in lower-earning positions that are traditionally more sensitive to downturns, things are looking worse. It might also spell rocky times ahead for an economy that's largely being propped up by the spending and opportunities of those at the top. The return to a K-shaped economy has caught the attention of the Federal Reserve and its voting members. In minutes from the December Fed meeting, a majority of participants "mentioned evidence of stronger spending growth for higher-income households," while lower-earning households were becoming "increasingly price sensitive" and adjusting their spending in response to price increases for essentials. At a December press conference, Federal Reserve Chair Jerome Powell said he's not sure how long this can last. "Most of the consumption does happen by people who have more means," Powell said. "I think the top third accounts for way more than a third of the consumption, for example. So, it's a good question how sustainable that is." A growing 'K' The "K" has been slowly shaping up over the last couple of years, and has accelerated in the last few months: A Bank of America Institute report showed that the growth in credit and debit card spending among lower-income and higher-income households split into a K shape around this past spring, with higher-income households experiencing spending growth near 3% year-over-year in late 2025, compared to less than 1% growth for the lower-income households. "While the 'K shape' continues, it will likely, in our view, gather additional focus in 2026," the authors wrote. On the income side, those at the bottom are doing worse than those at the top. The Atlanta Fed wage growth tracker showed that growth for the highest quartile of the wage distribution surpassed that of the lowest quartile in October 2024 and has remained consistently higher since then. Wage growth for the lowest quartile skyrocketed back in 2022, reaching the highest point on record in the fall after the gap between the two quartiles widened to the highest point in July. window.addEventListener("message",function(a){if(void 0!==a.data["datawrapper-height"]){var e=document.querySelectorAll("iframe");for(var t in a.data["datawrapper-height"])for(var r,i=0;r=e[i];i++)if(r.contentWindow===a.source){var d=a.data["datawrapper-height"][t]+"px";r.style.height=d}}}); "People who are putting a lot more of their income toward essential expenses are feeling burdened by that at a much greater capacity than people who have much higher incomes at the same time, unlike during that post-pandemic environment," Stephen Kates, a financial analyst at Bankrate, said. And while wages are trending higher for the upper quartile, it doesn't necessarily mean blockbuster gains — part of the precarity of the K as inflation remains stubborn. Gregory Daco, chief economist at EY, said cooler income growth has pushed many upper-median and below households to lean on savings and credit. "A K-shaped consumer spending outlook is simply not sustainable in the long-run — eventually income pulls spending," Daco said in written commentary. To be sure, some economists and analysts don't think the K-shaped economy ever really left. "We've been in a K-shaped economy for the better part of two decades," Joe Brusuelas, the chief economist of RSM, said, pointing to the 2008 financial crisis as one factor kick-starting the uneven outcomes. Now, Brusuelas said, economic inequality has "clearly deepened." "There was a brief period of narrowing early in the post-pandemic era when fiscal policy was put in place to provide a substitute for lost wages and mitigate the post-recession transition of the pandemic," he said. Anna Paulson, president and CEO of the Federal Reserve Bank of Philadelphia, said higher-income households have been able to "spend freely," benefiting from the ongoing robust stock market. The wealthiest 1% of Americans hold nearly half of the country's corporate equities and mutual funds, data from the Federal Reserve's Distributional Financial Accounts showed. "So, while headline growth is shaping up to be pretty decent this year, the base of support looks different — with a lot of concentration at the top," Paulson said. In Brusuelas's view, the US economy is largely locked into that K-shape and would need serious policy changes to shift it, and he doesn't see that as likely happening in 2026. "When I take a look at the policy landscape, it's all tilted toward the upper spur of the K," Brusuelas said. "So I'm expecting a further widening of that fundamental inequality in coming years." How is the economy affecting you? Have you made any adjustments to your daily habits or finances? Reach out to these reporters to share your story at mhoff@businessinsider.com and jkaplan@businessinsider.com. Read the original article on Business Insider