THE American economy has not been expanding as fast as was expected after its recovery began in 2010. Since then, it has continued to muddle along rather than accelerate. Indeed, latest figures show that gross domestic product (GDP) grew at just a 2.4 per cent annual pace in the fourth quarter of last year, revised down from 3.2 per cent originally reported, and much lower than the 4.1 per cent growth in Q3 2013. Some observers are blaming the unusual cold weather for the disappointing growth numbers, as Fed chairwoman Janet Yellen has suggested. But more likely, those numbers reflect the fall in government spending and the continuing weakness in the housing market. And while consumer spending and exports were increasing at the end of the last year, the performance fell below initial expectations.

Hence consumer spending grew at a 2.6 per cent annual rate in Q4, down from an earlier 3.3 per cent estimate, the Commerce Department said. And exports grew at a 9.4 per cent annual pace, lower than the 11.4 per cent rate reported in January. Overall, the US economy would probably continue to grow at a 2 per cent or even lower annual growth this year. And according to recent forecasts issued by the bipartisan US Congressional Budget Office (CBO), the economy could remain in sluggish conditions for quite a while yet. Hence the CBO economists are predicting a prolonged period during which US GDP will grow at a low average rate of 2.1 per cent.

At the same time, with American companies not ready to make new investments, there is probably not going to be major improvements in the job market. Indeed, according to the CBO, job growth will average less than 70,000 a month from 2019 till 2024. This and other economic forecasts may leave the US central bank with no other choice but to reassess its current plan to discontinue its aggressive monetary strategy aka quantitative easing (QE). The Fed has already started unwinding or tapering a programme that has expanded its balance sheet to more than US$4 trillion. It has begun cutting its massive bond purchases, creating expectations that it will wrap up QE by the end of 2014.