, Columnist
The Poverty of the Wealth Effect
Higher asset prices don't cause faster economic growth. They reflect it.
Not a source of economic growth.
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The Federal Reserve Bank of Dallas in a recent report noted that several factors affect consumer spending: “Higher incomes and household wealth boost spending. Higher, real (inflation-adjusted) interest rates—which encourage consumers to save—reduce current spending.” (emphasis added).
I emphasized “and household wealth” for a reason. Many of the Fed's recent monetary policy decisions, including quantitative easing and zero interest rates, were driven by a belief in the so-called wealth effect.