A simple problem with this simple model is that is does not account for the yield curve. You are not accounting for the price of money through time. We know that the yield curve tells us a lot about the economy. An inverted yield curve will usually precede a recession. The yield gap in a short-term rate can be compared with the yield gap of a long-term rate. If there is a significant difference between the two, it tells us that there is a difference in the shape of the yield curve. This can be used as an added signal for determining the market allocation. This type of model is used at BlackRock.
Of course, it could be used separately as a two part or dual model of yield gap and yield curve instead of a combination of two yield gap models which switches based on the difference between the yield gap model. The yield gap or Fed-type models have had a mixed history, but still seems to be an easy way to provide a first pass at relative value that can be employed by most investors.