Wall St mixed ahead of Fed verdict as doubts grow over 2026 cuts

Wall Street's main indexes were mixed on Wednesday, ahead of a closely watched Federal Reserve decision widely expected to deliver a rate cut, while investors grew uncertain over the extent and pace of rate reductions in 2026.

The central bank's ongoing meeting is likely one of its most divisive in years, as policymakers seek a delicate balance between reducing borrowing costs to support the labor market and curbing any reacceleration of inflation.

A prolonged absence of fresh economic data following the recent government shutdown, combined with uncertainty over who will lead the Federal Reserve next year, is adding to policymakers' challenges.

White House economic adviser Kevin Hassett, an advocate for interest rate cuts, is a front-runner for the position.

Traders are pricing in a near 90% chance that the Federal Reserve will announce its decision to cut interest rates by 25 basis points at 2 p.m. ET, according to CME's FedWatch Tool, and are also betting on additional easing in 2026.

"Markets at the moment are positioned for a hawkish Fed cut. Therefore, the bar for a dovish surprise is low. I think the Fed dot will be front-loaded to imply two cuts in 2026. No cuts in 2027 and no cuts after that," said Elias Haddad, global head of markets strategy at Brown Brothers Harriman.

The Fed's balance sheet and plans to purchase short-term bills to ensure ample liquidity in the banking system will also be on investors' radar.

Inflation worries have already prompted market participants to price in higher interest rates by the end of 2026 in Australia, Canada and Japan.

At 11:23 a.m. ET, the Dow Jones Industrial Average  rose 234.39 points, or 0.49%, to 47,794.68, the S&P 500  gained 7.61 points, or 0.11%, to 6,848.12, and the Nasdaq Composite lost 47.70 points, or 0.20%, to 23,528.79.

U.S. stocks have rallied since late November on lower rate expectations, bringing the S&P 500  within 1% of a record high. The Russell 2000 Index, which tracks small caps , also hit a record high, outperforming Wall Street's benchmark this quarter.

The rest of the week is likely to be dominated by earnings reports from major artificial intelligence players, including software company Oracle  and chipmaker Broadcom