ST. LOUIS – In an essay from the Federal Reserve Bank of St. Louis’ new Center for Household Financial Stability, the authors provide data on the damage to household wealth during the Great Recession, explore the circumstances that led to large declines in household wealth, make the case that such wealth has not fully recovered and show why all of that matters for U.S. economic recovery.
The essay was authored by the Center’s director, Ray Boshara, and chief economist, William Emmons, and it was published May 30, 2013, as part of the St. Louis Fed’s annual report. The analysis highlights the focus of the new Center—rebuilding the household balance sheets of struggling American families.
Boshara and Emmons featured several findings:
The Center will harness these insights and other research to inform policymakers, practitioners and financial institutions on ways to help families save and invest more wisely, thus contributing to households’ economic mobility and the nation’s economic growth.
St. Louis Fed President and CEO James Bullard wrote in the annual report that it is important to learn more about the link between households’ balance sheets—their savings, assets, debt and net worth, as distinct from wages and income—and the performance of the national economy.
“Work is under way and the partnerships are forming with colleagues throughout the Federal Reserve System, as well as external researchers and others,” Bullard wrote. “As we learn more about how microeconomic activity affects the performance of the macroeconomy, this research could have important public-policy implications, including insights for monetary policy.”
An early theme of the Center’s research is that too many families before the recession relied too heavily on wealth-depleting financial services, maintained a low level of savings, carried risky and high-cost consumer and mortgage debt, and did not diversify assets beyond housing.
With that in mind, and in an effort to prevent future large-scale household wealth losses, the Center’s team will conduct and publish research on key balance-sheet issues, organize research conferences and symposia, establish a web-based research clearinghouse, develop a Household Balance Sheet Index, and organize forums to better understand the balance-sheet issues affecting struggling families and communities.
To read the annual report, watch a video about the essay topic and learn more about the Center and its research, go to www.stlouisfed.org/hfs.