MORGAN STANLEY: 'This Is About As Good As It Gets'

We've seen some noisy, wobbly econ data in the past few months, but on balance it's been mostly positive.

While December's jobs report was shockingly weak, exports continue to surge, while imports plummet. And consumer spending is still curving upward.

In a new note, Vincent Reinhart says real GDP for the fourth quarter of 2013 is now tracking 3.7%, which means full year growth is at 2.9 percent.

And that's about where it's going to remain for awhile.

"The economy has apparently entered a growth channel centered around that [2013] pace, fueled by momentum in domestic spending now that the impediments of fiscal drag and financial-crisis fallout are largely behind us," Reinhart writes. "The question for the outlook is whether the US economy is in a new growth channel or is en route to even brisker expansion. For now, we stand by our call that this is about as good as it gets."

Reinhart looks at this in the context of what the Fed will do next - and the answer is that they will say this was what they were expecting all along and continue with the plan to slowly unwind its bond-buying program.

"Fed officials likely view the most recent employment report similarly to the Morgan Stanley US economics team, as best smoothed away by averaging across many other robust readings," he explains. He adds, "Expect the Fed to remind everyone that they were expecting this pickup in growth all along given their long-held view that it will be appropriate to keep the policy rate low well into 2015."

Reinhart also notes that new Fed Chair Janet Yellen will give her first-ever semiannual testimony on monetary policy on or before February 20th. She will likely take the opportunity to show that accommodative policy has had very little impact on inflation, and thus defend its continued implementation, he says:

"Important in that portrayal will be policy advice gotten from the Fed Board staff model. Inflation moves glacially slow in that model. Launching simulations with PCE inflation running around 1 percent virtually guarantees the conclusion that the policy rate can stay at zero for a very long time.

"This gives Yellen the opportunity to focus almost exclusively on price stability as the critical Fed pursuit-a pursuit that must be defended symmetrically from below and above-and still argue for continued policy accommodation."

The Federal Open Market Committee will announce its latest decision next Wednesday at 2 p.m. ET.