There's considerable dissension within the ranks at the Federal Reserve, with many of Chairman Ben Bernanke's colleagues saying the Fed's monthly purchase of $85 billion in bonds should end by late this year.
"About half" of 19 Fed members "indicated that it likely would be appropriate to end asset purchases later this year," according to minutes of the June Fed policy-making committee meeting, released Wednesday.
Ending QE3 could have enormous implications for the stock market – whose four-plus-year bull market has been buoyed by the central bank's stimulus – and for the economy as a whole.
But while there's growing sentiment inside the Fed to end QE, a majority of the 12 voting members of the policy-making Federal Open Market Committee hope to extend the bond-buying into next year.
Still, the Fed's June 18-19 meeting could prove to be a turning point, given the amount of discord at the meeting.
The minutes add some context to Bernanke's comments at a press conference immediately after the meeting in which he said the Fed could begin scaling back QE3 this year and end it altogether by mid-2014.
The markets dipped immediately after Bernanke's comments but then recovered some.
"They're Making It Up As They Go Along"
"To me, the real news is that you've got dissension inside the Fed now," said Money Morning Chief Investment Strategist Keith Fitz-Gerald. "My initial read is there's a lot more dissension than usual.
"And," Fitz-Gerald said, showing his longtime disdain for the Fed, "the level of dissension reinforces the notion that they don't know what they're doing and they're making it up as they go along."
Money Morning Capital Wave Strategist Shah Gilani, meanwhile, said the June FOMC showed legitimate concerns among members.
"The Fed is trying to see how the real world looks by taking off its 3D prism glasses and looking for a reality check," Gilani said.
The former hedge fund manager said he wasn't surprised by the dissension within the FOMC. "I expected it, and we should continue to see crosscurrents at every level of the Fed, the Open Market Committee and at the 12 regional Fed banks," Gilani said.
Much of the discussion at the June meeting focused on unemployment and the broader economy.
Fed Scrutinizes Unemployment, Economy's Performance
FOMC participants agreed employment – which along with inflation is part of the Fed's "dual mandate" of goals – had continued to improve.
"Many saw the cumulative decline in the unemployment rate and gains in nonfarm payrolls over the past nine months as considerable, "according to the minutes.
And members generally agreed the "economy was expanding at a moderate pace," noting gains in consumer spending and an improved housing market.
Most participants expected real GDP growth to pick up in the second half of 2013.
Among more pessimistic views, several participants worried higher mortgage rates and bond yields could slow the recovery of the housing market.
Members attending the meeting also discussed how Bernanke should present the FOMC's approach.
"Importantly, participants wanted to emphasize that the pace, composition and extent of asset purchases would continue to be dependent on the committee's economic outlook, as well as the cumulative progress toward the committee's economic objectives," the minutes stated.
Several participants, the minutes said, "pointed to the challenge of making it clear that policymakers necessarily weigh a broad range of economic variables and longer-run economic trends in assessing the outlook."
Some saw a "need to clearly communicate an intention to lower the pace of the [bond] purchases before long" while others said doing so could limit the FOMC's flexibility in adjusting bond purchases based on economic conditions.
The minutes noted inflation remained well below the Fed's goal of 2%.
Those who favored a reduction in bond purchases "soon" cited the decline in unemployment – for which the Fed has set a 7% goal – and ongoing increase in private payrolls.
As stocks and bonds continue to digest the notion of rising rates and the end of QE, investors can cash in before the Fed removes the punch bowl while the markets remain hot.
Fitz-Gerald suggests you put your money into solid energy, defense and tech stocks and municipal bonds.
Gilani recommended selling puts on ProShares UltraShort 20+ Year Treasury (NYSE: TBT).
The stock market showed little reaction to the release of the FOMC minutes.
Money Morning also gives you further insight into the Fed's next move: You can Figure out When the Fed Might Start Tapering