Discussion Paper

Has Broader Stock Market Participation Changed How Interest Rates Affect the Economy?

Abstract: Stock market participation in the U.S. has changed dramatically over the past four decades. In the mid-1980s, fewer than 30 percent of households held equity. By the early 2000s, more than half of U.S. households owned equity, either directly or through mutual funds, 401(k)s, and IRAs. As participation widened, the way stock market fluctuations passed through to household spending may have changed, with potential implications for how the broader economy behaves. An argument can be made that the rise in equity market participation has dampened the response of output to interest rate changes as stock market fluctuations are now spread across a larger share of households, moderating movements in consumer spending, asset prices, and investment spending.

JEL Classification: E32; E44; E22; G51;

https://doi.org/10.59576/lse.20260819

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Liberty Street Economics

Publication Date: 2026-08-19

Number: 20260819