The central bank's massive cash injections have helped Americans build up record wealth via home and stock prices. But those gains haven't been shared equally, while recent market jitters highlight the risks of weaning the economy off such stimulus.
Net worth in Q1 surged by $3 trillion from the prior quarter to $70.4 trillion, finally surpassing the pre-recession peak, the Federal Reserve said Thursday. The quarterly dollar increase also was the biggest since the end of 1999.
Households continued, on balance, to trim debt, while the value of their real estate assets climbed by $762 billion, as the Fed's quantitative easing swelled demand for homes and pushed up prices.
Corporate equity holdings jumped by $1.06 trillion, in line with stock indexes that rallied toward record highs. Equity grew by $1.3 trillion during all of 2012.
The Fed had targeted higher asset values as part of its QE strategy, in a bet that the wealth effect will feed more consumer spending and faster growth.
But fears the Fed may soon reduce its bond purchases have roiled stocks and sent mortgage rates spiking recently, threatening to reverse some wealth gains.
Over in Japan, the Nikkei has fallen 19% in just two weeks, though that followed an 80% run-up from the end of September on that country's aggressive fiscal and monetary easings.
U.S. stock indexes rebounded from a sharp intraday sell-off. The Labor Department's job report Friday will give markets another clue as to when the Fed may start tapering stimulus.
The Fed's QE is successfully doing what it was intended to do, which is lift asset prices, said Millan Mulraine, director of U.S. research and strategy at TD Securities. "The question is whether or not that is sustainable.
Premature QE cuts could trigger an unwinding in markets, but timing it correctly may not, he said. Rising home prices may be sustainable without QE due to underlying supply and demand.
For now though, it's too early to say if the wealth effect from asset price gains is fueling a virtuous cycle of increased spending, investment and hiring, he said.
But more than $3 trillion in Fed asset purchases has failed to jolt economic growth to rates seen in prior recoveries. Gross domestic product expanded by an annualized 2.4% in Q1, 2.2% in 2012, 1.8% in 2011 and 2.4% in 2010.
The uneven distribution of wealth gains, which came mostly from stocks, may also be delivering a weaker economic boost than what the collective increase might suggest.
Using Q4 data that have since been revised, the St. Louis Fed said last month that aggregate net worth by the end of 2012 had nominally regained 91% of what was lost during the recession.
But the number of households grew by 3.8 million from Q3 2007 to Q4 2012, meaning average net worth adjusted for inflation had regained only 45% of losses.
"Considering the uneven recovery of wealth across households, a conclusion that the financial damage of the crisis and recession largely has been repaired is not justified," the report said.