After drifting lower over the last several months, both U.S. consumer confidence and expectations popped in February. Late fourth-quarter events like the federal government shutdown and the broad-based selloff in equities were a drag on optimism. Chart 1 shows how same-store dollar volume tracked these sentiment factors, with retail transactions in sharp retreat at the end of last year. So what's changed? The risk of a government debt ceiling stalemate looms, but in the interim, equity market performance has been relatively more stable. Perhaps more importantly, the Federal Reserve gave consumers and businesses alike a reprieve by pledging to be patient with respect to monetary policy. Chart 2 compares the commercial bank interest rate - typically the annual percentage rate for credit cards - versus the Fed Funds rate. Up until recently, that commercial rate was moving toward its 20-year high. We'll have to see if a rebound in consumer confidence can offset the drag on consumption typically associated with the higher credit card rates.
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