Need to Know: The Fed’s rate hikes have succeeded in one way — it’s reduced wealth inequality, this analysis finds

by | Dec 21, 2022 | Stock Market

Maybe Santa hasn’t totally given up on the idea of visiting Wall Street. After all, on a day of the final central bank surprise for 2022, courtesy of the Bank of Japan widening its bond yield target, the S&P 500
SPX,
+0.10%
still managed a (tiny) gain. Still, the outlook at least for early next year isn’t great. “The Fed and the BOE aren’t done hiking rates, the ECB is turning up the pressure, and the BOJ is just getting started. The global top of this cycle still lies ahead,” says Tim Duy, chief U.S. economist at SGH Macro Advisors.

There’s some good news, from the Fed’s rate hike campaign so far. As Wolf Richter of the Wolf Street blog points out, wealth inequality has been reduced. Drawing on data both from the Federal Reserve and the Commerce Department, he calculated the change in average wealth per household, from the end of 2021 through the third quarter.
Wealth category

Average wealth

Change in dollars

Change in %

Top 0.1%

$132.4 million

-$13 million

-9%

Remaining 1%

$19.3 million

-$2.4 million

-11.2%

Next 9%

$4.4 million

-$269,000

-5.8%

Next 40%

$768,000

-$16,500

-2.1%

Bottom 50%

$70,800

+$10,800

+18.1%

“The Bottom 50% own almost no stocks and mutual funds, which is why a stock-market swoon doesn’t faze them. Most of their assets are their home and ‘consumer durables.’ Consumer durables are things like cars, appliances, electronics, etc., whose value depreciates,” says Richter. Granted, he said, the Fed helped fuel inequality in the first place. “The Fed’s reversal of QE and interest-rate repression in 2022 is deflating the Everything Bubble and is thereby narrowing the horrendous wealth disparity that the Fed had wrought with its easy-money policies in the prior years,” said Richter. It’s worth reading his full analysis here.The market U.S. stock futures
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+0.86%
 

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