Further, Wang said if all four of the above variables move in the wrong direction, the U.S. economy "will be in very poor shape, including additional financial market distress." If just two factors break the wrong way, the economy barely grows or falls into a recession, he said. If only one variable worsens, the economy begins to recover.

So the Fed, which has cut interest rates four times since September 2007 -- including last week's emergency meeting in which it cut both the Fed Funds rate and the discount rate by 75 basis points, to 3.50% and 4.00%, respectively -- will have to cut again, Wang said. Further, the Fed should be prepared to lower the Fed Funds rate to 2.50% if conditions warrant, in the quarters ahead.

Inflation not paramount

Also, inflation, although still above the Fed's 1.7-1.9% comfort zone, "will continue to be monitored, of course, but cannot be the Fed's primary concern," Wang said.

Wang said that the several leading economic indicators -- industrial production, manufacturers' new orders, new building permits, and initial unemployment claims -- would need to show strength for several months before, in his interpretation, the Fed could feel safe raising rates. "And it may be awhile before those indicators in unison show prolonged strength," Wang said.

Economist Steve Affinito agreed with Wang. A self-described 'stimulus hawk,' Affinito argued that the Fed may have to take the Fed Funds rate below 2.50% in the year ahead.

"Admittedly, that would be inflationary, but in the final analysis if the Fed is faced with a functioning economy with some inflation and a non-functioning economy with slightly lower inflation, there's only one way for the Fed to go, in my view," Affinito said.