Fed Chief Jerome Powell also warned investors against the Omicron strain, which he said threatens to slow down the country's economic recovery.
Powell also remarked on Tuesday that inflation no longer warrants the "transitory" label.
Investors were assessing the likely damage to oil demand from the Omicron COVID-19 variant, while the OPEC+ group postponed a meeting to do the same.
Little is known about the new COVID strain emerging in Africa. That hasn't stopped traders from betting big on lockdowns and a return to telework.
Brent and WTI fell by more than 10%, given the expectation for a surplus of unused fuel to weigh on prices in the coming few months.
Bond yields continued to rise with the 10-year Treasury note rising slightly to 1.672%, well above a recent low of 1.418%.
Bond yields continued to rise with the key 10-year Treasury note edging up to 1.648%, well above a recent low of 1.418% touched in November.
The yield on 10-year Treasury fell to 1.522%. Oil prices slipped as the COVID-19 surge in Europe raised concerns about the economic recovery.
Stocks edged lower as Treasury yields climbed on expectations the Fed may have to hike interest rates sooner.
US oil prices slipped 3% to settle at $78.36 per barrel on Wednesday, the lowest finish since October 7.
"Demand is robust today but will it be robust in six months' time? There are really big questions in terms of demand destruction," El-Erian told CNBC.
Having absorbed the initial shock over US inflation running at 31-year highs, stocks traded cautiously higher, while the strong dollar weighed on oil.
Positive results on Pfizer's COVID-19 pill also helped spark a broad rally among travel-related stocks, such as aviation, cruise lines and hotels.
The economy added 531,000 jobs to nonfarm payrolls in October, beating the median forecast for a gain of 450,000.
With the all-important monthly US jobs report due, stocks were trading steadily near record highs, while OPEC+ stuck to its guns on oil supply rises.
The two-day meeting of the FOMC is expected to culminate in the central bank's announcement that it will begin tapering monthly bond purchases.
US economic output grew less than expected in the third quarter as the recovery fell to its slowest pace since the pandemic began.