(Reuters) -U.S. household wealth rose last quarter to $163.8 trillion, a fresh record, driven by gains in real estate values as well as a rise in the stock market, data from the Federal Reserve showed on Thursday. 

The increase in the net worth of households and non-profits, which stood at $161 trillion at the end of the first quarter, was driven largely by a $1.8 trillion increase in the value of real estate holdings and a $700 billion gain in the value of equity holdings.

At the same time, household debt rose at an annualized rate of 3.2%, the fastest pace since the third quarter of 2022. Cash on hand dropped modestly, the report also showed, with bank balances plus money market funds and foreign currency holdings totaling $18.44 trillion at the end of June, down from a record $18.51 trillion at the end of March

The snapshot of households’ financial wellbeing comes less than a week before the Federal Reserve is widely expected to reduce borrowing costs for the first time since the pandemic recession.

Policymakers are making the move as inflation has cooled and in hopes of preventing a slowing labor market from worsening, dragging the broad economy down with it.

The stock market ended the second quarter at near-record levels, with the benchmark S&P 500 index delivering a total return of 4.3% including reinvested dividends.

The report also showed business debt rose at an annualized 3.8% pace, a shade less than the 4% pace of the first quarter.

(Reporting by Ann Saphir; Editing by Andrea Ricci)