US economy surprised: gap between rich and poor barely growing

For years, the US economy was described as a K-shaped economy. The idea was that wealthy Americans benefit fully from rising stock prices and other financial assets, while the bottom half suffers mainly from inflation and high costs.

New figures from the Federal Reserve question that narrative.

The latest Survey of Consumer Finances shows that the United States is still extremely unequal. But remarkably, that inequality has barely increased since the pandemic.

Since 2019, incomes at the bottom of the distribution have been growing at about the same rate or even faster than at the top. Even with power, the difference in growth rate has become smaller.

The researchers even conclude that wealth inequality seems to have “barely changed” in the past three years. That doesn't mean the differences are small.

The richest 10 percent have a median income of about $400,000, five times as much as American families around the middle of the income distribution.

Also striking is how much the richest Americans actually consume. The top 10 percent by income accounts for about 28 percent of all consumer spending, according to the Fed.

That's a lot, but significantly less than previous estimates of around 50 percent. Thus, strong US consumption cannot be explained simply by a small group of extremely wealthy households.

There is an important risk in these figures. For wealthier Americans, a large part of the recent capital growth came from equities and other investments. For middle-income earners, owning their own home is much more important.

If high interest rates cause house prices to stagnate for a long time, the wealth gap can widen again. At the same time, the financing costs for poorer households are increasing and payment arrears are increasing.

The image is therefore more nuanced than the popular K-shape suggests. America remains very unequal, but in recent years incomes and assets at the bottom have not fallen further behind. The high interest rate can now put that balance under pressure again.