US STOCKS-Wall St muted ahead of Fed verdict as doubts grow over 2026 cuts

By Johann M Cherian and Pranav Kashyap

Dec 10 (Reuters) - Wall Street's main indexes were little changed on Wednesday, ahead of a closely watched Federal Reserve decision widely expected to deliver a rate cut, even as concerns grew over the extent and pace of potential 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 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.

Wall Street's fear gauge, the Cboe Volatility Index .VIX was at an over one-week high.

At 9:44 a.m. ET, the Dow Jones Industrial Average .DJI rose 29.82 points, or 0.06%, to 47,590.11, the S&P 500 .SPX lost 0.64 points, or 0.00%, to 6,839.87 and the Nasdaq Composite .IXIC lost 42.46 points, or 0.18%, to 23,534.03.

U.S. stocks have rallied since late November on lower rate expectations, bringing the S&P 500 .SPX within 1% of a record high. The Russell 2000 Index, which tracks small caps .RUT, 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 ORCL.N and chipmaker Broadcom AVGO.O.

Investors will scrutinize the results as worries about debt-fueled corporate spending, complex deal-making across the AI sector and uncertainty over how companies will monetize the technology have sparked recent sell-offs in equity and debt markets.

The info-tech sector .SPLRCT was down the most, pressured by an over 2% decline in Intel INTC.O and Microsoft MSFT.O.

On Wednesday, shares of energy equipment manufacturer GE Vernova surged 14% after forecasting higher revenue in 2026, signaling strong demand for its AI-related infrastructure.

Lending giant JPMorgan Chase JPM.N steadied following a nearly 5% drop in the previous session after saying it expects higher expenses next year.

Advancing issues outnumbered decliners by a 1.18-to-1 ratio on the NYSE and declining issues outnumbered advancers by a 1.18-to-1 ratio on the Nasdaq.

The S&P 500 posted 11 new 52-week highs and four new lows, while the Nasdaq Composite recorded 38 new highs and 37 new lows.