U.S. households’ real wealth plunged at a record 20.9% annual rate to $143 trillion in the second quarter of the year, with modest gains in home values offset by high inflation and a big selloff in the stock market SPX, +1.06% DJIA, +0.71% COMP, +1.27%, according to data released Friday by the Federal Reserve and analyzed by MarketWatch.
While the Fed doesn’t directly target stock prices, policy makers know that higher rates generally hurt stocks and that the loss of wealth on Wall Street is one of the main ways the Fed can affect the economy on Main Street. Consumer spending could be reduced by hundreds of billions of dollars over the next year via this wealth effect.
Wealth is defined as the value of all assets owned by U.S. residents minus the value of their liabilities . Unfortunately, the Fed reports the data in nominal terms and does not adjust for inflation, in part because the Fed’s financial accounts release follows global reporting standards. Unfortunate because reporting the data in nominal terms distorts the reality of inflation’s impact on family wealth.
In real terms, household holdings of corporate equities and mutual funds fell by a record $7.4 trillion to $35.3 trillion in the second quarter, the Fed reported. At the same time, the real value of real estate rose by $771 billion to $41.2 trillion as house prices continued to rise faster than overall inflation.
But Janet Yellen et al. says we're better off