Bond purchases in November

The market reaction to the outcome of the Fed meetings was positive. The central bank refuted expectations that interest rates would need to be raised sooner, but pointed to continued reasons for inflation in 2022. Here's what investors need to know.

The Federal Reserve announced Wednesday that it will begin cutting bond purchases later this month at a rate of $15 billion each month.

Treasury bond purchases will be cut by $10 billion and mortgage-backed bonds by $5 billion each month from the current $120 billion a month that the Fed is buying. If this pace continues, the cuts will be completed by July 2022. Meanwhile, Fed Chairman Jerome Powell dismissed growing fears of a central bank interest rate hike as soon as 2022. The current deadline for the first rate hike, according to the Fed's forecast, is 2023.

Powell also reiterated that a Fed rate hike would require a more meaningful economic and labor market recovery than a reduction in asset purchases.

About 5 million people in the U.S. remain unemployed compared to pre-pandemic levels, despite a record 10 million vacant jobs.

The U.S. stock market reacted to the Fed's statements with the major stock indices rising. The S&P 500, Nasdaq Composite and Dow Jones rose 0.65%, 1.04% and 0.29%, respectively.

Fed on Inflation

Price growth in the U.S. is rising faster and more steadily today than economists and policymakers had predicted.

Fed officials say inflation will eventually return to the 2% target, but now say it may take longer.

Officials cited persistent supply chain problems as the main temporary reason why U.S. inflation will remain high in 2022.

Economic survey data in recent months suggest that consumer inflation expectations are rising, with experts pointing to the risks of a so-called wage-price spiral, where wages and the cost of consumer goods accompany each other.

Friday's jobs report will be an important signal for the market

What happens to the trajectory of inflation depends a lot on what happens to the labor market. When the U.S. Labor Department releases its October jobs report on Friday, investors will get an update on whether Americans are back to work.