U.S. Federal Reserve officials are playing it cool for now, but roughly US$2.5 trillion in stock market value wiped out in the past three weeks and a possible consumer pullback could throw the Fed off its course of gradual interest rate hikes.

    Policymakers continue to argue that the threat will pass, but the risk that the selloff will hit the main engine of U.S. economic growth — household spending — gets bigger the longer markets remain depressed.

    Fed research and other studies estimate that up to 6 percent of any drop in household net worth gets passed through and results in less spending. It means that unless the market recovers soon, upwards of US$150 billion in consumption will be lost in coming months, a drag of close to 1 percent of gross domestic product.

    Fed policymakers meet today and Wednesday for the first time since raising interest rates in December. While no move is expected, investors will parse their statement to see how recent events have influenced the U.S. central bank’s outlook.

    Since its last meeting, oil prices have plumbed new multi-year lows, worries about China’s growth have roiled stock markets and Fed officials have voiced concerns that a recent drop in U.S. inflation expectations could mark a dent in household and business confidence.

    Central bankers typically discount market swings as largely irrelevant to monetary policy, unless they become big enough to impact business investment, hiring or household spending.

    Outside analysis and a review of data suggest this could be such a case, given how wealth effects of the market slide, if sustained over time, could erode a large chunk of the economic growth now expected by the Fed.

    In addition, other indicators of consumer spending habits have begun to flatline or suggest households may tighten their purse strings.

    The personal savings rate ticked higher through late last year to reach 5.6 percent of disposable income in November, up from the 4.8 percent average for 2013 and 2014. This could signal a return of consumer caution that characterized the subdued early stages of the recovery from the 2007-2009 recession when U.S. households focused on repairing their finances.

    Retail sales fell in December, the peak of the Christmas shopping season, contributing to disappointing results at Macy’s and followed shortly by Wal-Mart’s announced plan to close more than 150 U.S. stores.

    Owners’ equity in real estate, which surged in recent years as housing prices recovered after the recession, stalled through the first nine months of last year at around 56 percent of mortgage debt.

    Household net worth as a multiple of disposable income, had by last year recovered from the financial crisis thanks to rising home and stock prices, but growth stagnated throughout 2015. Both measures are important proxies for consumption as they improve access to credit, bolster confidence and make households more ready to spend.

    “When you put it all together, if equities keep softening and you get rising savings and if consumer confidence starts to decline you have a narrative that points in the same direction of maybe less consumption growth,” said Ben Herzon, senior economist with the Macroeconomic Advisers consulting firm.

    The firm is forecasting 2.5 percent U.S. growth for this year, just above the Fed’s base forecast of 2.4 percent. (SD-Agencies)