Photo: Deutsche Bank
The wealth effect has been mentioned as one of the key reasons motivating the Fed to engage in quantitative easing. By utilising monetary policy tools, The Fed thinks it can increase the price of assets like stocks and homes. Some feel the Fed is trying to increase confidence amongst consumers and, in turn, consumer spending.The worry is this won’t actually achieve anything, because spending is done by those without wealth, or assets, and saving is done by those with them.
Deutsche Bank would like to dispel this myth. The bank suggests that, actually, 40% of low income households are homeowners and over 50% of all U.S. families own stock.
So a rise in asset values should impact a broad part of society, when compared to incomes (assets do include cars).
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