Instead of replacing his wife's 1999 Ford Crown Victoria, they kept it and bought an extended service plan. Recession fears arise Chalk up another one for Federal Reserve Chairman Alan Greenspan and Fed policymakers. Though they never said so in so many words, reining in the soaring markets and cutting the heart out of wealth-effect spending were exactly what Fed officials had in mind when they began raising interest rates more than 18 months ago. Then, Greenspan worried that spending was dangerously strong, so overheated that it could touch off a bout of inflation as cash-rich consumers overwhelmed the ability of businesses to produce enough goods to satisfy them. Policymakers got what they wanted, and more.
Most economists say no.
There are plenty of wealth-effect anecdotes, but economists have been unable to measure its precise behavior, either going up or coming down. For instance, the markets have been sliding since March, but only now is consumer spending beginning to slow dramatically. Some analysts say that's because there's a lag between a market plunge and a spending response. Ken Mayland of ClearView Economics also notes that until this fall, stocks were generally still ahead of where they were a year ago. Similarly, economists can't precisely measure the impact of the wealth effect.