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US riches grew by $19 trillion during the pandemic – but mostly for the wealthy

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Rising inventories and financial assets helped US household riches grow by $19 trillion during the pandemic to $137 trillion, but riches inequality has worsened, according to a unused report.

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That means American household net riches increased 16% from the end of the fourth quarter of 2019 through the first quarter of 2021, the largest 15-month acquire since 2004, according to Oxford Economics.

But more than 90% of the gains in household holdings of real estate, stocks and mutual funds in this extension “reflect higher prices, with the little balance remaining coming from unused investments,” write Oxford Economics economists Nancy Vanden Houten and Gregory Dako. , in a note on Tuesday.

In other words, those who owned the assets benefited the most during the crisis.

“Those in the top 1% of the income distribution saw their riches increase by 23%, while those in the lowest income quintile saw only a 2.5% increase in net riches,” the team wrote.

A similar pattern has occurred in US savings, where more than 80% of the $2.6 trillion in excess savings reside with those in the country’s two highest income categories.

All eyes are on the Federal Reserve

Federal Reserve Chairman Jerome Powell has repeatedly pointed to the disproportionate toll the pandemic is taking on low-income families in terms of health and riches impacts. The fate of the central bank’s simple monetary policies has also been linked to making significant progress in recovery and restoring millions of jobs lost during the crisis.

Investors will tune in Wednesday for an update from the Federal Reserve on economic recovery and inflation, which has been hot in recent months, but also for insights into the central bank’s thinking about the COVID-19 delta variant and plans for $120 billion in monthly asset purchases.

be seenThe Fed is walking a tightrope between downside risks and inflation

US stock indices retreated from record territory ahead of the Fed’s report, with the Dow Jones Industrial Average down 0.2% on Tuesday, the S&P 500 down 0.5% and the Nasdaq Composite down 1.2%.

Many investors expect consumer spending to aid drive the economic recovery, particularly as fiscal stimulus wanes, and as the central bank considers the time to restore its support to financial markets, likely first by reducing its big-scale asset purchases from Treasurys and the mortgage agency. Real estate backed guarantees.

Who is the driver?

But the big questions remain. Concerns have mounted about the delta variant and what it could unkind this fall when young children, not yet eligible for the shot, return to the classroom. There is also an increase in the cost of living and how this can affect workers’ pay, which may limit consumer spending.

Hutten and Dako of Oxford Economics expect households to withdraw $360 billion, or 14%, of savings to fund consumption in the next six quarters, supporting 9% growth in real consumer spending in 2021 and 5% in 2022.

“The accumulation of excess savings by higher-income households will support a powerful pace of consumer spending that is just start, and is expected to persevere through 2022,” they wrote.

As another sign of spending, US asset-backed bond issuance tied to things like cars, credit cards and student loans has already reached $163 billion this year, a 61% jump from the alike period in 2020, and 11% higher than the alike period. The period is in 2019, according to BofA Global Research.

The Consumer Financial Protection Bureau said Tuesday that credit applications for auto loans, unused mortgages and credit cards in May also returned to pre-pandemic levels.

The exception was borrowers with lofty-risk and lofty-risk credit scores, which were generally pegged at 600 and below, as applications for credit fell for all but the mortgage credit category.

“We will persevere to closely monitor the market as the economic recovery continues, to aid ensure that all consumers have access to financial products and services that are sincere, transparent and competitive,” said Dave Uyggio, acting director of the CFPB, in a statement. .

paying off: How did the 10-year Treasury rate and the S&P 500 perform when the Fed scored in 2013


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