Economic Prospects for the United States: Is the Current K-shaped Economy Sustainable?
Although the U.S. economy continues to expand at a moderate pace, the foundations of growth are becoming increasingly fragile. This Strategic Analysis examines the current state of the US economy using the Levy Institute’s Stock-Flow Consistent (SFC) macroeconomic model, highlighting the growing divergence between aggregate economic performance and households income and expenditure trends. The report shows that while GDP growth remains close to 2 percent under the baseline outlook, the benefits of expansion are increasingly concentrated among high-income households and AI-related industries, following a “K-shaped” pattern. Beyond the baseline projection, the report presents a stress-test scenario that examines the macroeconomic consequences of a sharp correction in AI-driven financial markets. The simulations suggest that a collapse in private demand could rapidly push the U.S. economy into recession, as rising fiscal deficits and public debt would emerge largely as consequences—not causes—of the downturn.
Key findings
- Moderate GDP growth masks widening economic and financial inequalities.
- Consumption and investment are increasingly concentrated among higher-income households and AI-related sectors.
- Household financial fragility remains elevated despite aggregate economic resilience.
- A severe correction in financial markets could trigger a recession through collapsing private demand.
- Rising fiscal deficits and public debt would emerge largely as consequences—not causes—of the downturn.
