The Fed sat back and blamed bad weather on everything for the past few months and Yellen & Co. are not going to completely change their tune after a weak quarter but they’ll change it a bit.
Concern about the US economy is real. Sure, today’s ADP employment numbers were decent but have a look at the four-month moving average.
ADP with 4 month MA
Probably the most worrisome element of the weak GDP reading is business investment falling 2.1%. At this point in the recovery it’s absolute critical that companies begin putting money to work.
That’s the main takeaway: A weak quarter is okay but the economy better snap back in Q2 in a big way.
Look for a more cautious economic outlook from the Fed but don’t expect any talk of slowing the taper. To me, the taper is virtually set in stone and the Fed will use some type of forward guidance in the future if it needs to stimulate the economy. Either that or ask Congress start acting like adults.
Where the Fed impact could hit is in the dollar. At the margins, the Fed is more likely to be worried about low inflation for longer after this round of GDP data.