The Federal Reserve should pull back the reins on quantitative easing now because key economic indicators point to a firm U.S. recovery, according to Bernard Baumohl, chief economist at the Economic Outlook Group and author of "The Secrets of Economic Indicators."

Baumohl told MarketWatch the worst part of the economic downturn is clearly over, even though gross domestic product (GDP) grew only at a listless 1.1 percent annual rate over the past six months.

"The best leading indicators tell us the economy is — finally — beginning to gain fresh traction. And it's about time ... Never have we seen credit so cheap and banks so flush with funds to lend."

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did

Baumohl ticked off the reasons why he sees a more vibrant American economy ahead, namely improvements in household wealth, real estate, auto sales and consumer confidence.

He is also optimistic about employment. "We are seeing life after the sequester and the payroll tax increase. Business leaders have begun to express more confidence about the economic outlook and that should lead to greater hiring in coming months."

Baumohl predicted the outlook for key U.S. trading partners — a source of concern among many observers — is looking rosier. He sees Europe coming out of recession, predicts Japan is on the road to growth and believes Chinese growth will be more than 6 percent in months ahead.

On the cautionary side, Baumohl told MarketWatch it is important that whoever replaces Fed Chairman Ben Bernanke follow the monetary path he has laid out, and said there is a danger chaotic events in the Middle East could trigger further oil spikes.

"I expect to see the economies of Europe, Japan and even China do better as well. Make no mistake; the fundamentals of the global economy are improving," he noted.

"As a result, we have a year-end target of 15,800 for the Dow and 1,720 for the S&P 500. The two major risks here are if President Obama picks a more controversial person to replace Ben Bernanke — and a calamitous eruption in the Middle East," Baumohl added.

A new survey of 65 members from the National Association for Business Economics (NABE) showed that business activity decelerated in the second quarter of 2013, but optimism is growing and hiring plans are picking up steam.

"The forecast for economic growth improved for a third straight quarter, with more than 70 percent of respondents indicating they are now anticipating real GDP growth will exceed 2 percent in the next 12 months, up from 65 percent that forecast such growth in the previous survey," the report stated.

The NABE survey showed payroll gains picked up in the second quarter after holding largely firm in the first quarter. Nearly 30 percent of those surveyed reported employment rose at their firms in the second quarter of 2013.

However, only about 35 percent of the respondents said sales at their firms increased in the second quarter — a steep drop from the 55 percent who reported rising sales in the first quarter.

Editor's Note: Economist Unapologetically Calls Out Bernanke, Obama for Mishandling Economy. See What They Did