Federal Reserve Governor Randall Kroszner cautioned Thursday that the plunge in the stock market could harm U.S. consumers, as their retirement accounts take a hit at the same time home prices across the country continue to decline. Repeating remarks he made earlier in the month, Kroszner warned of a "negative wealth effect" that could endanger consumers.
Kroszner suggested that the government authorities think about what it "can do to support economic activity." Kroszner's remarks before the National Conference on the Securities Industry in New York came one day after the Federal Reserve decided to cut the key interest rate by half a percentage point, bringing it to a 4-year low of 1 percent.
In a statement accompanying the rate cut decision, the Fed noted signs of a weaker economy, including a drop in consumer spending - the linchpin of the economy.
"The pace of economic activity appears to have slowed markedly, owing importantly to a decline in consumer expenditures," the Fed stated.
The central bank went on to say "the intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit."
Adding weight to the Fed's concerns was the release of third quarter GDP Thursday, which showed economic activity contracted in the third quarter. The Commerce Department's gross domestic product report revealed that although the economy contracted, the rate of contraction was slower than economists had been anticipating.
The report showed that GDP fell by 0.3 percent in the third quarter compared to the 2.8 percent growth that was seen in the second quarter. Economists had been expecting a slightly more significant decrease of about 0.5 percent.
With the economic picture deteriorating, many Democrats in congress have called for a second economic stimulus. Federal Reserve Chairman Ben Bernanke has expressed his support for a possible stimulus, telling a congressional committee earlier in the month that the extra cash in consumer's pockets might be "appropriate."
However, while the White House maintains that they are open to ideas that may be ultimately brought forward for another economic stimulus, the proposals that have been brought up so far aren't the best way to stimulate the economy.
"What we have not seen from the Democratic leadership are ideas that would actually stimulate the economy," White House Spokeswoman Dana Perino said Wednesday. "There would be a lot more deficit spending, but that doesn't necessarily help anybody in the near term."
The stimulus talk has been mostly associated with the campaign, Perino said, "rather than any serious discussion about how to stimulate the economy."
For his part, Kroszner said the Fed would use all its tools to "improve market functioning and liquidity, to reduce pressures in key credit and funding markets, and to complement the steps the Treasury and foreign governments will be taking."
For comments and feedback contact: editorial@rttnews.com
June 05, 2026 16:18 ET A busy week for economic news flow saw a slew of reports being released that reflected the trends in the U.S. labor market. In Europe, economic growth and inflation data gained attention as the European Central Bank and Bank of England head for policy session later in the month. In Asia, the monetary policy session of the Indian central bank was in focus as the country, a major oil importer, reels under the pressures of a weaker rupee and rising inflation.