Today's (Wednesday) release of the December FOMC meeting minutes makes clear one thing: the U.S. Federal Reserve does not have a plan for the course of the stimulus reduction it announced last month.
Beginning in January, the Fed was to taper its bond-buying program by $10 billion per month.
The Fed was to reduce its purchases of long-term Treasury bonds from $45 billion a month to $40 billion, and mortgage-backed securities from $40 billion a month to $35 billion.
But investors looking for a predictable plan for the pace of asset-purchase reductions will have to keep guessing – the FOMC meeting minutes reveal the Fed itself doesn't have a clue.
"I like that the market has gone up during the stimulus, like anyone else, but let's not confuse that with economic health," Money Morning Chief Financial Strategist Keith Fitz-Gerald weighed in. "Fundamentally, there are significant cracks in the system, and I haven't heard one word of how the Fed will get itself out of this. There is no 'Plan B', and they're making it up as they go along."
What Today's FOMC Meeting Minutes Tell Us
Indeed, the December FOMC meeting minutes reveal Fed officials are uncertain about the future of the stimulus and how it should be structured, nor do they have any contingency plan should it falter. All we know is that the Fed will likely cut the purchases "in further measured steps at future meetings," assuming the economy continues to advance.
The markets reflected the feeling of uncertainty today, both before and after the minutes' release.
Stocks were mixed this morning amid swirling fears that the Fed might choose to rein in its stimulus more aggressively than it did in December. Just an hour before the 2 p.m. FOMC minutes' release, the Dow Jones Industrial Average was down 0.47% to 16,452.56, while the Nasdaq Composite Index rose 0.28% to 4,164.73. Standard & Poor's 500 Index remained flat at 1,836.88 (a 0.05% decline).
The markets had a muted reaction after the minutes' release, holding on to earlier losses with little change.
In light of today's FOMC info, investors should employ this course of action to play the Fed…
The Fed and Investing in 2014
The Fed doesn't have a plan of action, nor does it have a backup plan of action. And the government is out of control.
That means two things for investors.