On April 30, 2014, the FOMC released its latest policy statement. The Fed is going to continue with its so-called taper. This is the fourth straight meeting where it has announced another reduction of $10 billion per month in asset purchases.
Throughout 2013, the Fed was buying assets (creating new money) at a pace of $85 billion per month. It will now be down to $45 billion per month. This is still a lot of money, but it is still a reduction in the rate.
For this reason, I believe there could be some major economic turmoil in the near future. While stocks are hitting all-time highs, there has also been a lot of volatility lately. If the economy goes down, the stock market will probably lead the way.
If the Fed continues to taper, I think a recession becomes more likely in the short term. The big question will be what the Fed's response is after the recession hits. Will the Fed keep tapering in the face of a new recession? I doubt it.
I am really cautious right now in terms of investments, particularly regarding stocks. The latest boom in stocks was built on the Fed's loose monetary policy. As that is removed, the support for stocks is removed.
It will be interesting to see if Yellen and the Fed keep tapering. The next meeting and policy announcement will be on June 18, 2014.