What Katrina has done is shift the economic focus from inflation to growth.

With inflation slowing, the focus now is to keep rates steady for growth.

It's as good as it gets. You've got low inflation, minimal wage pressure, great productivity, booming growth and strong demand.

High oil prices may raise inflation but longer-term it's negative for growth and that's how the Fed sees it.

If anything, this confirms the Fed's bias towards inflation rather than worrying about a slow down in growth. The Fed seems to have no worries about growth, as least as far as manufacturing is measured by ISM.

We expect the combination of solid economic growth and higher inflation risks to push the Fed to raise rates higher than is implied by prevailing bond yields.