The US Fed – caught in a Goldilocks environment?

The US Fed meeting on Wednesday was one of the key financial market events of the week. The Fed’s December rate hike was followed up with decidedly more dovish rhetoric at the March meeting and investors were anxious over any modification in the wording to signal a change in policy.

Fed Chair Janet Yellen played it safe. She removed the reference over global growth concerns, but reiterated that the Fed will move cautiously in hiking rates. The Fed’s focus returned to the US which they noted have slowed during the first quarter, but they highlighted that strong hiring and income gains have the potential to reignite consumer spending and propel economic growth over coming months.

Hence the door for a June rate hike was kept firmly open. The US economy indeed stalled during the first quarter as GDP growth slowed down from 1.4% in the final quarter of last year to 0.5%. This was the third year in a row that first quarter growth showed a seasonal slowdown. The deceleration could largely be explained by weak business investment, a slowdown in exports due to the stronger dollar and lower government spending.

The UK economy also reported disappointing first quarter results. GDP expanded by a mere 0.4% during this period. The services sector, which accounts for more than ¾ of growth showed resilience, but output in construction, agriculture and construction all contracted.

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