While the first Fed taper has been postponed, the first taper should occur within the next two to six months according to BNY Mellon Chief Economist Richard Hoey in his most recent Economic Update entitled, "Seven Year Expansion."

"We regard the Fed's failure to start the taper as a leading indicator of a central bank which will eventually end up 'behind the curve' in its monetary policy, slowly building up the pressure for a major upward spike in interest rates in 2017 or 2018, following the Presidential election of 2016," said Hoey.  "While the first Fed taper has been postponed, we expect the first taper to occur within the next two to six months."

Hoey expects an acceleration in global economic growth in 2014, above the pace of 2012 and 2013. This should be largely attributable to stronger growth in many developed countries in response to past monetary ease and continuing monetary ease, he says.  While there should be a mixed pattern among emerging countries, Hoey states that fears of a developing market crisis appear overdone and continued expansion at a moderate rate can be anticipated in most of them.

"We believe the U.S. economy has moved into the second half of what we expect will be seven consecutive years of economic expansion," Hoey says.  "U.S. real GDP has grown at about 2% over the past four years, but we expect an acceleration to three years of 3% real economic growth in 2014, 2015 and 2016. This should be due largely to the fading of several drags, such as the federal fiscal drag and the state and local downsizing drag. The U.S. is not very inflation-prone, so monetary policy can remain stimulative. The dovish stance of monetary policy was reinforced by the Fed's recent decision to postpone the first taper of QE3."

Hoey also continues to expect a three-phase upward adjustment of bond yields over a half-decade period, as outlined in the report entitled "Interest Rate Normalization" dated September 12, 2013. The first phase is an adjustment to free-market levels from artificially low bond yields, which reflect an artificial scarcity of bonds due to large scale bond purchases under QE3.

"This adjustment is underway, but in a choppy pattern, due to the Fed's 'Hamlet syndrome' about beginning the tapering down of QE3. To taper or not to taper? That is the question," Hoey concludes. 

See http://www.bnymellon.com/foresight/markets-economy/economic-update-video-richard-hoey.html for Hoey's complete "Seven Year Expansion" Economic Update.