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Greenspan: Need data
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August 31, 2001: 2:04 p.m. ET
Fed chair: Policy makers don't have good sense on capital gains' impact
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NEW YORK (CNNfn) - Federal Reserve Chairman Alan Greenspan said Friday that he and other policy makers need better measures of the impact of wealth, especially capital gains, on consumer spending.
Speaking at the opening of a Fed symposium in Jackson Hole, Wyo., the chairman said policy makers don't have a good sense of how stock market profits and improvement in home values affect consumer spending patterns.
"We need far more information than we currently possess about the nature and the sources of capital gains and the interaction of these gains with credit markets and consumer behavior," the chairman said in his prepared remarks.
A better understanding of the impact of gains is important as the Fed tries to set policy in the face of the slow down in the U.S. economy, the chairman said.
"The influence of capital gains on economic behavior ... is likely to be of substantial consequence for the prospective performance of the economy," Greenspan said in his comments.
Greenspan's remarks focused on capital gains from improved home equity values in addition to the change in value in consumers' stock market portfolios.
"For example, over the past year and a half, home values have appreciated, whereas equity values have contracted significantly," he said. "In such circumstances, differences in the propensities to consume out of the capital gains and losses on different types of assets could have significant implications for aggregate demand."
But Greenspan said that even though many consumers have tapped into their home's increased value through home equity loans to make major purchases or reduce higher-interest debt, he and other policy makers are working on new ways to measure the impact of gains in home values.
Greenspan also said that it is clear that different types of capital gains, whether in equities, retirement accounts, or home value, have far different impacts on household spending, and that the Fed is working to differentiate the differences in future economic models.
The impact of the so-called wealth effect on consumer spending and the economy has been something of concern to Greenspan and the Fed for a number of years. In December 1996, before the headiest days of the now departed bull stock market, Greenspan rattled markets when he said that that "irrational exuberance" in the stock market was reason for concern.
But with the decline in the stock market since spring of 2000, there is not as much concern about consumers being too optimistic due to the size of their portfolios. On Friday morning the University of Michigan revised its August reading on consumer confidence sharply downward, to 91.5 from the 93.5 preliminary reading it published earlier this month.
Click here for CNNfn.com special report: Eyes on the Fed
Last week the Fed cut interest rates for the seventh time in 2001 in an attempt to spur the lagging economy. 
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