Financial disruptions have an important impact in terms of lending, and they actually have an impact in terms of spending ... These issues are something that we have to pay attention to and have been paying a lot of attention to.

From Q&A as reported by Reuters 

Indeed, it would not be surprising to see even more moderation over the next year or so, as consumers face additional constraints due to the declines in the stock market, the tightening of lending terms at depository institutions, and the lagged effects of previous increases in energy prices. National surveys show that consumer confidence has plummeted. And I have been hearing comments and stories from my business contacts in the retail industry that are also downbeat. The rise in delinquency rates across the spectrum of consumer loans is strongly indicative of the growing strains on households.

Employment growth  has been strong and that supports consumer spending.  However, the combined weakness in wealth… that is both housing wealth and stock market wealth… and some softness in employment growth seem to be suggesting that the robustness of consumer spending going forward may not be as healthy as we thought it was just a few months ago. So that’s the source of concern, and whether that spending and employment growth will continue to support consumer spending going forward.

We do not take an alarmist view on this {housing wealth effects}. However, there are some who feel that consumers react extremely strongly to changes, for example, in home equity line availability.

Our sense is that the relationship between home wealth and consumer spending is governed primarily by what's called the wealth effect, which suggests that, for each dollar that a house value falls, there's a net effect on consumer spending of somewhere between 4 cents and 9 cents, something like that.

So there is -- and that effect may be spread over a period of  time. So there would be an effect. But we see it as relatively moderate.

From the Q&A session.

At issue is the potential effect of the housing decline on consumer expenditures. The loss of wealth associated with the decline in housing prices, as well as the fact that mortgage payments will absorb a larger portion of disposable income for some consumers, might cause consumption—the largest component of GDP—to grow at a significantly slower rate. While the effect of a change in wealth on consumer expenditures has been notoriously difficult to identify empirically, some recent evidence suggests that changes in housing wealth do affect consumption. 

Residential investment has been a major source of weakness in the economy for a year and a half. Forecasters who were predicting a recovery in the housing sector by the end of this year have been revising down their forecasts to incorporate the effect of rising mortgage defaults, financial turmoil, and softening housing prices. Particularly notable is the decline in housing prices in many regions of the country. Consumer spending is affected by households net worth and housing equity is an important component of wealth. While the effect of the problems in housing on consumption has been muted to date, further and more widespread deterioration in housing prices would increase the risk of a more adverse impact on consumption.

An alternative perspective on savings and consumption is that the strong recent growth in household spending indicates optimism about future income prospects, rather than any fundamental recklessness. The labor market is reasonably tight, with the unemployment rate at 4.5 percent. Earnings are growing at about a 4 percent rate. The working age population is growing at a 0.9 percent annual rate, and payroll employment has grown significantly more rapidly, at a 1.6 percent rate for the last few years. While employment growth won't be above average forever, prospects for real income growth look pretty solid. Moreover, household net worth is up to 5¾ years of disposable personal income, and has been rising during this recovery, which suggests that savings, properly measured, might not be so low after all.

[T]he so-called “wealth effect” that links increases and decreases in house prices with rises and falls in consumer spending may not be as strong as some analysts suggest.  In our estimation, the run-up in housing values over the past several years did not spur much of a bigger-than-expected increase in consumer spending — if anything, the response was a bit on the low side compared to the historical average. So we wonder about how large a spending effect one should expect to accompany a fall in housing prices, if that were to occur. Clearly mortgage equity withdrawals have been sizable during the housing “boom,” but many of these withdrawals were used to reduce other forms of consumer debt and to make one-time improvements in the housing stock.  Indeed, as a result, overall household balance sheets today continue to look fairly strong.

Another risk has to do with household saving behavior. In the U.S., the personal saving rate has been declining for more than a decade. During the 1980s, it averaged 9 percent. This July, it was all the way down to minus 1 percent. Frankly, it's hard to see how it could go much lower. So the risk is that a sustained rise could occur, which would put a real crimp in consumer spending and therefore in overall economic activity. Though there's some uncertainty about why the saving rate has fallen into negative territory, I strongly suspect that part of it is related to the growth in consumer wealth over the last several years both through rising housing values and through rising stock values. Therefore, the more recent softening in both of those sources of wealth may provide a bit more impetus for a reversal in the saving trend; in other words, it is conceivable that people will shift gears and try to build up savings the old-fashioned way, by spending less. Whatever its source, the very low—in fact, negative—saving rate represents a downside risk for the economy, with the chance of sizeable drop-off in consumer spending likely to be bigger than a surge in spending.

[T]he wealth effect is total household wealth. Remember, we've also got equities and bond-market wealth in there. So housing is not the total at all. And the stock market has generally been doing pretty good. 

The wealth effect has also spread out over time. It doesn't produce an instantaneous impact. So it's clearly something we're watching. And we would anticipate that consumption might soften a little.   But I think that's all within the realm of what's anticipated.