U.S. households across all income levels suffered declines in wealth during the worst recession in seven decades, and many families’ desire for a bigger buffer in savings may slow the recovery, a Federal Reserve survey found.
Median wealth fell to $96,000 in 2009 from $125,000 in 2007, and 63 percent of families had a decline, the central bank said today in its first report on a 2009 survey of 3,862 households that also participated in a similar 2007 survey. Most families sought “greater desired precautionary savings” in 2009 than they had in 2007, the Fed said.
The report may help policy makers and the public better understand how the downturn, which lasted from December 2007 to June 2009, set back U.S. families’ finances and contribute to research in years to come. Fed Chairman Ben S. Bernanke is counting on higher asset prices to boost the economy as a result of the central bank’s record monetary stimulus.
“The data show signs that families’ behavior may act in some ways as a brake on reviving the economy in the short run,” the Fed said in the report, written by five staff researchers. In addition, “it appears that families may be relatively reluctant to spend more when asset prices rise and may more readily reduce spending when asset prices fall,” the paper said.
The world’s largest economy shrank 4.1 percent from the fourth quarter of 2007 to the second quarter of 2009, the most during any recession since the 1930s, according to the U.S. Commerce Department.
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