Ignore The Wealth Effect At Your Peril

Desmond Lachman
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Summary

  • The recent unusually large swing in household wealth is not getting the attention it deserves as another recession risk.
  • According to the St. Louis Federal Reserve, largely as a result of surging equity and home prices, household wealth increased from $116 trillion at the end of 2019 to $149 trillion at the end of 2021.
  • Since the start of this year, both equity and bond prices have declined by 20 percent while exotic markets like those of cryptocurrency have declined by some 70 percent.

businessman with money in his pocket and a poor worker with an empty pocket. The concept of income inequality of the population. Social stratification

Diy13/iStock via Getty Images

Among the more striking consequences of the Federal Reserve’s shift to a more hawkish monetary policy stance has been the swing in wealth creation from strong household wealth creation last year to rapid household wealth

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Desmond Lachman joined AEI after serving as a managing director and chief emerging market economic strategist at Salomon Smith Barney. He previously served as deputy director in the International Monetary Fund's (IMF) Policy Development and Review Department and was active in staff formulation of IMF policies. Mr. Lachman has written extensively on the global economic crisis, the U.S. housing market bust, the U.S. dollar, and the strains in the euro area. At AEI, Mr. Lachman is focused on the global macroeconomy, global currency issues, and the multilateral lending agencies.

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