Perhaps - as we are always reminded - it will be different this time but following this morning's surge in Consumer Confidence, we got to thinking, just why is everyone so confident? The facts are, as Citi's FX Technicals group notes, the last times we saw mortgage rates surge like they just have [3], that marked the peak in consumer confidence and the market followed shortly after. It seems that the Fed, by engineering ever lower rates, can lift confidence; but as is clear from this chart (and as we noted previously [4]) there is a limit to this effect (ZIRP) and each cycle has diminishing returns.
[5]
Chart adapted from Citi FX Technicals