Wall Street Hits Pause Button as Fed Readies Final Rate Call of the Year

CNBC, Reuters, and AP contributed to this report.

The stock market barely budged Tuesday as investors did what they usually do right before a big Federal Reserve decision: hurry up and wait.

The S&P 500 inched up about 0.1%, matching a similar gain in the Nasdaq Composite, while the Dow Jones Industrial Average added roughly 115 points, or 0.2%. Not exactly fireworks — more like a market tapping the brakes and glancing nervously at the calendar.

All eyes are on Wednesday, when the Fed will announce its final interest rate decision of 2025. Traders are overwhelmingly betting on another quarter-point rate cut, which would follow similar moves in September and October. According to the CME FedWatch tool, markets now see about an 87% chance of a cut, up from less than 67% a month ago.

So the cut itself isn’t really the suspense.

What is? The messaging.

“While a rate cut feels almost certain at this point, the Fed’s economic projections and Chairman Powell’s commentary will play a big role in how markets react — not only this week, but it could possibly set the tone for the remainder of the month,” said Bret Kenwell, US investment analyst at eToro.

After a recent pullback in stocks and crypto, more aggressive “risk-on” investors are clearly hoping the Fed will help fuel a year-end rally, not kill the mood by sounding too worried about inflation.

Kenwell pointed out that the Fed is juggling a lot heading into this meeting:

• Stubborn inflation that’s still running above the 2% target;
• A murky macro picture, with slowing but not collapsing growth;
• Economic data delays after the record US government shutdown;
• The looming expectation of a new Fed chair in 2026.

“There are a lot of moving parts for the Fed in 2026,” Kenwell said. “That brings up the key question: Will the Fed be able to strike an accommodative tone if these factors persist into 2026, or will its dual mandate keep the doves in check?”

Translation: even if the Fed cuts Wednesday, it might make it very clear that more cuts next year are not guaranteed.

That nuance — how “dovish” or “tough” the Fed sounds about 2026 — could matter more to markets than the rate move itself.

On the stock level, CVS was one of Tuesday’s standouts, rising about 3% after the company laid out a better-than-expected profit outlook for next year. Investors have been watching closely to see whether CVS’ long-term turnaround plan is really taking hold; Tuesday’s reaction suggests Wall Street liked what it heard.

Tech, meanwhile, has been doing the heavy lifting lately.

On Monday, the technology sector was the only one of the 11 S&P 500 sectors to finish in the green, thanks to strength in semiconductors and AI-related names:

• Broadcom climbed nearly 3%;
• Nvidia and Microsoft each gained about 2%.

Those moves followed a report that Microsoft is considering designing custom chips with Broadcom, yet another sign of how fiercely big tech is competing over AI hardware.

While stocks were mostly calm, the 10-year Treasury yield kept grinding higher, reflecting ongoing anxiety about sticky inflation and uncertainty over how far and fast the Fed can safely cut.

Investors are trying to thread a needle here:

• Too few cuts, and borrowing stays expensive, weighing on housing, business investment and growth.
• Too many cuts, and the Fed risks re-igniting inflation, undoing years of painful progress.

For now, markets are pricing in Wednesday’s cut as a near-done deal — but they’re far less sure about what the Fed will do beyond that. Powell’s comments and the Fed’s updated economic projections on inflation, growth and unemployment will likely dictate whether the current, cautious optimism holds — or cracks.

Wall Street isn’t panicking, but it’s definitely not charging ahead either. With stocks hovering near record levels and the Fed about to speak for the last time this year, investors are content to shuffle sideways and wait to see whether Powell hands them a green light for a year-end rally — or a gentle warning to slow their roll.