Minutes of the Fed's January gathering showed that policymakers favored continuing to reduce bond purchases by $10 billion per month unless the economy swerves from its current path upward.
While recent U.S. housing and labor market data have come in below estimates, the weather has been blamed for the misses, and policymakers don't seem to view the weakness as a major shift in the economy's trend higher.
Another dilemma highlighted by the minutes is the trade-off between the unemployment rate and inflation.
The Fed planned to keep interest rates near zero until the U.S. unemployment rate fell below 6.5%, which should happen during the next few months. But inflation remains under the central bank's 2% target. U.S. producer prices released Tuesday increased just 1.2% during the past 12 months.
With questions still lingering within the Fed over how future problems will be handled, U.S. equities have lost some upside momentum.
Meanwhile, important technical levels on the charts of the PowerShares DB US Dollar Index Bullish (UUP) and the SPDR S&P 500 are offering resistance.
SPDR S&P 500 has recovered sharply higher after selling pressure the past few months. The increase led the index back to record highs, but a major catalyst is needed if prices are going to break above 185.
Similarly, PowerShares DB US Dollar Index Bullish sold off as iShares 20+ Year Treasury Bond (TLT) was bid higher by anxious global investors, reducing long-term interest rates.
The dollar's price looks to have stabilized near the 21.40 level and should move higher over the coming weeks as the minutes show a united front by the Fed to continue to reduce bond purchases.
If the central bank doesn't end its bond-buying program by the end of the year, that would signal a declining economic environment and likely lead to a drop in U.S. equities.SPY data by YCharts
At the time of publication, the author had no position in any of the funds mentioned.
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