The ramp-up in household wealth has occurred much faster than in previous cycles and has been fostered by the US Federal Reserve's quantitative easing (QE) policies, said AllianceBernstein director of global economic research Joseph Carson in a report released yesterday.
“In our view, the strong advance in asset prices should be a warning sign to policymakers that excess liquidity can lead to destabilising imbalances,” Mr Carson said.
“We think the Fed should take its foot off the gas pedal in light of recent asset price gains,” he said.
During the third quarter of this year, US households gained $2 trillion of wealth, bringing total net worth to $77.3 trillion – a record high – according to the US Federal Reserve board.
Since the end of the recession in the (northern) spring of 2009, US household net worth has surged by $21 trillion, according to the AllianceBernstein report – with increasing prices in both real and financial assets being the primary drivers.
“The recent surge in household net worth relative to income growth has happened especially fast,” Mr Carson said. “At the end of the third quarter of 2013, household net worth as a percentage of disposable income had reached 615 per cent, which is still short of the all-time high of 662 per cent reached during the 2006/2007 housing bubble, but is equal to the unusually high ration recorded at the peak of the surge in equity prices towards the end of the economic recovery during the 1990s.
“Consumers are now armed with record wealth and much more liquidity to help support additional credit use and spending.”
With increasing evidence of solid economic growth and job gains, Mr Carson believes it is time the Fed “rein in the asset purchase program”.
