American household net worth fell to its lowest level since the financial crisis during the fourth quarter of 2018 when volatility roiled the capital markets, according to data published by the Federal Reserve on Thursday.
Net worth dropped to $104.3 trillion to close out 2018, which represents a $3.73 trillion decline–3.4 percent. Despite the decline in household net worth, gross domestic product (GDP) rose 2.6 percent during the fourth quarter, which bested expectations of 2.2 percent by a Dow Jones survey of economists.
The higher GDP comes after a 3.4 percent rise in the third quarter. A tumultuous fourth quarter for U.S. equities may have caused economists to believe that a lesser GDP figure would result.
A 2.8 percent rise in consumer spending helped to boost the better-than-expected GDP. Other factors included increased nonresidential fixed investment, exports, private inventory investment, and federal government spending.
Fed Foresees Challenges Ahead
The most recent data comes after the Fed Chair Jerome Powell recently concluded his semiannual testimony before Congress. Powell said that “crosscurrents and conflicting signals” are warranting a patient approach with respect to interest rate policy.
In a prepared testimony to Congress, Powell said that domestic and global developments have “along with ongoing government policy uncertainty, warranted taking a patient approach with regard to future policy changes.” Furthermore, Powell said that economic data will continue to be the primary driver in future Fed decisions, but will be more flexible with the inclusion of new data.
“Going forward, our policy decisions will continue to be data dependent and will take into account new information as economic conditions and the outlook evolve,’’ Powell told the Senate Banking Committee. “We’re in no rush to make a judgment about changes in policy.”
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In addition to Powell’s comments, New York Fed President John Williams said during a speech to the Economic Club of New York that gross domestic product (GDP) growth will likely slow to 2 percent in 2019 after a year of 3 percent growth.
Williams cited three major factors for the lowered estimate: a global economic slowdown, tighter financial conditions, and geopolitical uncertainty. However, an eventual slowdown in GDP growth shouldn’t be cause for alarm.
“Now, I know this talk of slowing growth is causing uncertainty, some hand-wringing, and even fear of recession. But slower growth shouldn’t necessarily come as a surprise,” Williams said in prepared remarks. “For quite some time, the economic fundamentals have pointed to GDP growth much lower than what we saw in the 1990s, for example.”
As for interest rate policy for 2019, Williams said the Fed will be data-dependent and more flexible.
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