The economy grew by 1.8% in the first quarter and incoming data suggest that the second quarter will also be soft. That said, the economy is set to accelerate strongly in the second half of the year, reflecting dissipating fiscal headwinds, positive wealth effects, a stronger labour market recovery and a loosening of credit standards. Against this background, we expect the Fed to start tapering off its QE programmes in December, though there is a risk that the Fed will already move in September. The expectation of the Fed gradually withdrawing its stimulus has sent a shock wave through financial markets. However, the resulting tightening of financial conditions has been modest and will not to derail the recovery. Moreover, in the absence of inflationary pressures, the Fed is likely to manage its exit expectations carefully, suggesting that financial markets will soon enter calmer waters.