Given that the economic data will be strong, people will wonder why the Fed is not moving, which could cause some volatility in the markets. But we think the Fed will remain on hold for quite some time.

If we get a downside surprise in retail sales, everybody will shrug it off. We all know that April was a bad month for the economy; the markets are really geared toward May.

People choose to consume based on expected earnings. The unemployment data should take some of the froth off of a couple of really strong [recent] data reports.

What the current deficit does is make the dollar vulnerable. It means we could see a vicious cycle, where a declining dollar makes U.S. assets less attractive to foreign investors, which weakens our assets further, which puts further pressure on the dollar.

We've seen markets get ahead of themselves in bonds and in currencies as well. There are signs that markets have now gotten too optimistic about not only the size of the U.S. recovery, but the speed; our medium-term forecast is still very much of euro strength and dollar weakness.

I don't think there is a tremendous amount the Fed can do, but they can't stay on the sidelines. Unless the data stream improves, they have to cut rates.