wealth effect investment & finance definition

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.