At 2 PM local time on Wednesday, the Federal Reserve released the November FOMC resolution: As expected, the FOMC announced that it will start reducing debt in November, reducing the purchase of $10 billion of US Treasuries and $5 billion of agency residential mortgage-backed securities (MBS) per month. Starting in November, the Fed will buy $70 billion of Treasury bonds and $35 billion of agency MBS. Beginning in December, the Committee will purchase $60 billion of Treasury securities and $30 billion of agency MBS.

Under the Fed's policy path, if it buys $15 billion less each month, it will run out of $120 billion in monthly asset purchases in eight months, meaning it will end its open market bond purchases by June. However, the Fed also said it would adjust the pace of bond purchases based on the economic outlook and "may soon" if employment and inflation come in line with expectations. What the Fed is saying is that if the economic outlook changes (worsens), the Fed is also ready to adjust the pace of purchases (slower tapering).

Some analysts interpreted this as "the Fed has some flexibility in tapering," the analysts pointed out that "a lot of this has to do with the uncertainty of inflation, although they say inflation is temporary, but they also added the word 'expected', which kind of hedged their bets and gave them more flexibility." They've added more transparency, made the timeline clearer, and the market really likes that..."

But there are analysts who take a different view! Tom Garretson, an economist at Royal Bank of Canada, called the Federal Open Market Committee's decision to start tapering in November "a little hawkish" and a sign that the Fed does want to start tapering as soon as possible. Diane Swonk, chief economist at Grant Thornton, said talk of a possible change in the pace of tapering gave the Fed a chance to take another look. It is "a bit late" for the Fed to start tapering.

On inflation, the Fed continues to insist that the rise is transitory: The Fed also subtly adjusted its stance on inflation, acknowledging that price increases have been faster and more persistent than central bankers had expected, CNBC reported. However, the Fed's statement still characterized price increases as "transitory," which could push back a rate hike even longer. State Street Global Advisors' Michael Arone said, "They continue to see inflation as transitory, which suggests they will continue to stay lower for longer than many expect."

Wall Street analysts took the Fed's announcement of a widely expected plan to taper quantitative easing, but its insistence that the surge in inflation was' mostly 'transitory, as a sign that the doves still had the upper hand. This also gives the US stock market a "reassurance", which means that the Federal Reserve will not be pressured by inflation in the short term and suddenly change the existing monetary policy course and raise interest rates prematurely.

Powell's dovish message: Federal Reserve Chairman Jerome Powell sent a dovish message at a press conference, his expectations of falling inflation, full employment are more optimistic, and stressed that now is not the time to raise interest rates. In terms of inflation, Fed Chairman Powell believes that as the epidemic dissipates, US inflation may return to normal in the second or third quarter of next year. Powell said the central bank is changing monetary policy as appropriate. "I don't think we're behind the curve. In fact, I think our policies are well positioned to address a range of possible outcomes, and that's what we need to do.

Despite Powell's dovish signal, this does not seem to have affected the market's expectations for the Fed's rate hike: as the chart below shows, the market still expects the Fed to raise rates by 25 basis points in June 2022 and twice by December 2022. If anything, analyst Ben Purvis said, they are embracing the possibility, especially given the Fed's timetable for tapering slightly earlier than expected. While the Fed announced a pace of reduction that was in line with most expectations, the starting point means the Fed also has room to start raising rates slightly earlier.

However, futures market traders' expectations for no rate hike in June, as reflected in CME's FedWatch Tool, fell from nearly 42 per cent to more than 38 per cent, for no rate hike in July, from 31 per cent to 28 per cent, and for no rate hike until the end of December, from 5.5 per cent to 4.8 per cent. Markets may be pricing in a faster timetable than the Fed. David Kelly, chief global strategist at jpmorgan Capital Management, thinks the Fed may not raise rates in July or September next year and will wait until its last meeting in December.