US stocks were little changed Wednesday as markets awaited the Federal Reserve’s last interest rate decision of 2025.
The Dow Jones Industrial Average traded along the flatline, matching the muted moves in the S&P 500, while the Nasdaq Composite dipped 0.2%.
The restrained trading pattern extended the recent trend in which equities have fluctuated between marginal gains and losses as investors prepare for a closely watched policy outcome.
Fed expected to deliver third straight rate cut
The Fed is widely expected to cut rates by a quarter percentage point for a third consecutive meeting.
Fed funds futures imply roughly a 90% probability of such a move, according to CME’s FedWatch tool.
However, sentiment within the Federal Open Market Committee remains split.
Some policymakers see an urgent need to ease further to prevent additional labour market deterioration, while others caution that another reduction could complicate efforts to bring inflation down sustainably.
Investors are therefore focused not only on the rate decision but also on the nuance in the post-meeting statement and Chair Jerome Powell’s press conference on Wednesday afternoon.
Market positioning reflects mixed expectations
Tuesday’s session underscored the cautious tone. Both the S&P 500 and the Dow closed slightly lower, while the Nasdaq posted a modest gain.
The S&P 500 now trades roughly 1% below its record close from Oct. 28 — the day before the Fed’s previous decision.
On Oct. 29, the central bank lowered rates, but Powell signalled that a December cut was not assured, a remark that sent equities sharply lower and contributed to a volatile November.
Only when several Fed officials later indicated support for another reduction did the benchmark index recover toward its current near-record level.
The market rebound has been uneven, though. Large-cap technology shares have regained some strength, but investors have also begun rotating into smaller companies that tend to be more sensitive to borrowing costs.
Small-cap stocks outperform on rate-cut hopes
The Russell 2000 index of small-cap companies hit a fresh all-time intraday high on Tuesday.
The prospect of near-term rate cuts has provided a tailwind for the group, which typically benefits more quickly from easing financial conditions, given its greater exposure to market-based borrowing costs.
Lower rates could improve profit margins for these firms, reinforcing the renewed investor interest.
With investors awaiting clarity from the Fed, markets are likely to remain cautious until policymakers signal how they intend to navigate the next phase of monetary policy.
Whether Powell hints at additional cuts in early 2026 may prove more consequential for equities than the widely expected move on Wednesday.
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