A tendency on the part of consumers to spend more when they feel wealthier or more financially secure, as when their investments or homes increase in value.
The tendency of consumers to spend more because they believe they are wealthier. This newfound wealth may come from stock gains during a bull market or the rising value of real estate investments. If a wealth effect becomes too pronounced, it can produce inflation. That was a fear of Federal Reserve policy makers who kept watching for signs of inflation from consumers’ strong spending habits during the record run-up in the stock market in the late 1990s that peaked in 2000.