Two research notes released this week indicate the fiscal drag is hitting hard right now and is expected to fade towards the end of the year. Right now it looks like Q2 is tracking close to 2% GDP growth.

From economist Alec Phillips at Goldman Sachs:

Earlier this year, we expected fiscal policy to weigh on growth most heavily in Q2 and Q3, when sequestration, other federal spending reductions, and the recent tax increases looked likely to have their greatest combined effect. It now looks like the fiscal drag will be somewhat more spread out than we anticipated.

My interpretation of these reports is the U.S. consumer will continue to be challenged by higher taxes and lukewarm job prospects.  For this reason, I continue to hold my grade of C for the CONSUMER (see above).