The markets have probably been too quick to connect the dots from the current slew of good data straight to a Fed rate hike,

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.

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.

When I'm singing, I connect the dots with notes.

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.

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.