Short-term rates: Room to run?
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Interest rates
"(When the fed funds rate is at 5 percent) overnight money market accounts would be 5 percent, a three-month CD would be about 5.35 percent, a six-month would be 5.5 percent or higher and a one-year would be at 5.7 percent. The five-year CD would be a bit of a problem; probably wouldn't see 6 percent, more like 5.75 percent. This should happen by the end of the year.

"Consumers should recognize that no one gets the top right. I would suggest that they buy one-year CDs every six months or even more frequently. Watch what the consumer does, not what the press says. When consumers get a deal like zero interest on cars, they buy like crazy. That tells you the consumer is healthier than most economists give them credit for. When the consumer is sick they don't buy."

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The economy
"We don't see any signs of recession right now. We think the yield curve indicator may not be accurate this time in terms of forecasting a recession because the reason the yield curve is inverted is different than many times previously. In the past, short-term rates were artificially high because they were engineered by the Fed to be high. Today's short-term rates aren't high but the yield curve is flat because the long-term rates are so low. That's an indication of low expectation for inflation.

"Bernanke also thinks there's a glut of global savings driving down interest rates and yields on all sorts of financial assets. There's an element of truth in all of that. What's important is that the yield curve isn't inverted because of artificially high short-term rates. The rates are just getting to neutral; plus the economy still looks pretty darn strong. There are few signs of weakness. It's hard to say a recession is looming."

The Fed
"The Fed is likely, in our view, to respond to incoming data. That probably means another rate hike or two of 25 basis points. I think that's reasonable as long as there's no significant weakening in the economic data. The fed funds rate is likely to be about 5 percent by midyear."

Interest rates
"Usually, investors don't trade in fed funds so we get a slightly lower rate. I think investors could get close to 5 percent, in three to six months, on cash and cash-like instruments. It's possible, but unlikely, that they'd get 6 percent by year end. They're very close to what you'd have to label as a neutral point where they're not stimulating the economy and they're not restraining it either.

"A spillover of the price gains in energy and food into overall consumer prices, where the core rate of inflation rises at a faster rate than the Fed is comfortable with, opens the door to where rates could go 6 percent or higher. That's possible, but not likely."