NEW YORK (Reuters), Wednesday’s Federal Reserve statement said that it will reduce its monthly bond purchases beginning in November, with plans to terminate them in 2022. But the Federal Reserve maintained its belief high inflation would be “transitory” so a slow rise in interest rates may not be necessary.

But, the U.S. central banks acknowledged the global supply issues as contributing to inflation risk, adding that they “are expected” to be temporary and would need to reduce to bring about the predicted drop in inflation. Fed officials believe the process will take longer, even though there was a slight change to their language.

STORY:

STATEMENT

MARKET REACTION:

STOCKS: At last, the stock index was 0.16% higher than it had been before.

BONDS – The bond rose to 1.5822, briefly peaking above 1.60%, and the 2-year yield climbed to 0.47777%

FOREX: The fell a little more to -0.105%

COMMENTS

JOSEPH LAVORGNA, AMERICAS CHIEF ECONOMIST, NATIXIS, NEW YORK

“I don’t think that there’s anything unique in the statement other than the fact they’re trying to buy themselves time by saying both the inflation and supply chain disruptions are temporary, and that’s the bottom line. We got exactly what we were supposed to get.

“They’re hedging their bets, but that’s not anything new, because we’ve heard publicly they’re a little less confident that things are going to come down as quickly on the inflation side as they thought. Along with supply disruptions, things just drag on a bit longer and the statement reflects those realities.”

TOM GARRETSON SENIOR PORTFOLIO STRATEGIST RBC WEALTH MANAGEMENT MINNEAPOLIS

“More or less as expected, this means it is all going to hinge on the press conference given a lot of the nuance around what the markets re-price in terms of Fed expectations, the focus will be the press conference. You can already see the yields on the long end starting to rise, and stocks are performing well. However, this does not mean that the Fed is going to be focusing as much as it did. The only question was about how the Fed would define inflation. They kinda qualified their answer by saying they expect temporary inflation. So maybe the risk to this meeting was they signal more that the inflationary pressures are starting to build up more than they are willing to tolerate.”

“It kind of offset because there is some question about the taper of asset purchases would start this month or next month. The November start may be a bit too hawkish. It seems they want it to begin as soon as possible. The key point is, despite recent inflation concerns, they seem to still expect it to be temporary. They also included the qualification statement that it is mostly down to the supply and demand factors within certain economic sectors.

OLIVER PURSCHE, SENIOR VICE PRESIDENT, ADVISOR, WEALTHSPIRE ADVISORS, NEW YORK:

    “It seems very much in line with market expectations, and that’s reflected in the muted reaction. This is also leading me think… We can expect one or two rate increases tops in 2022. That’s less than most had expected. It’s a good thing that there are not many surprises. It’s also interesting that they clearly stated that many of their actions will be dependent on economic recovery and an optimistic outlook regarding inflation.