Best Small Cos. The issue is significant because central bankers are trying to determine whether last year's big stock market losses, especially in the technology sector, will undo Santa's good work, prompting consumers to save more and spend less.
Economists say there are some reasons for doubting the role of the wealth effect.
These analysts have questioned whether wealth drives consumption. But right now, Fed policy makers appear to be believers. For five years, beginning in 1995, the steadily rising value of stocks and real estate strengthened the balance sheets of millions of American households. With their retirement account statements showing strong, steady gains, and their home values rising, Americans began to spend more and save less of their after-tax personal income. Meanwhile, spending rose.