Stock Market Live: Stocks Higher With Fed In Focus As Bulls Poised For Santa Claus Rally

Stocks are holding steady heading into the final hours of trading prior to the Fed's December rate decision at 2:00 pm Eastern time.

Updated at 11:07 am EST

U.S. stocks extended gains Wednesday, while the dollar slipped lower against its global peers and Treasury bond yields steadied, as investors looked anxiously to the Federal Reserve's key interest rate decision later in the session.

A softer-than-expected inflation reading for the month of November triggered a big boost in investor sentiment Tuesday, as core consumer prices rose at their slowest pace in nearly two years while headline CPI declined for a fifth consecutive month amid a pullback in gas prices, used cars and airfares.

Traders immediately moved to re-price their bets on near term rate hikes from the Fed, including the chances of a so-called terminal Fed Funds rate -- the point at which the central bank will pause from its recent tightening cycle -- of below 5%. Today's Fed decision, however, is still likely to deliver a 50 basis point rate hike that will take the benchmark lending rate to a range of between 4.25% and 4.5%, according to futures tracked by the CME Group's FedWatch.

Bond markets are also pricing in a softer Fed stance, with benchmark 2-year Treasury notes yields slipping to 2.184% in overnight trading while 10-year notes were holding at around 3.499%.

The U.S. dollar index, which tracks the greenback against a basket of six global currencies, was marked 0.11% lower at 103.868 after hitting a six-month low of 103.570 in yesterday's session immediately following the November CPI data.

The Fed will also publish a series of projections from its Board of Governors later today showing where all 18 members (there is currently one vacancy) expect the mid-point of the Fed Funds rate to be at the end of each of the next three years. The so-called 'dot plots', which are published anonymously, provide markets with a broad indication as to where and when the Fed is likely to pause its current rate hike cycle.

Chair Jerome Powell hinted earlier this month that this so-called terminal rate could be higher than markets are currently forecast, and higher than the 4.625% predicted by the 'dot plot' published in September. However, Committee members have expressed the need for smaller rate increases as they track their cumulative impact on the economy, suggesting the prospect of a lower terminal rate from at least a portion of the group.

"The Fed has signaled it is on board with the market’s consensus for a 0.50% hike this week, but a hawkish press conference by Chair Powell could be a catalyst for some retracement,' said Lawrence Gillum, fixed income strategist for LPL Financial. "However, with the second softer-than-expected CPI release today, maybe the market is right."

On Wall Street, stocks are looking firmly higher ahead of the Fed decision at 2:00 pm Eastern time, with the S&P 500 rising 25 points in late morning trading while the Dow Jones Industrial Average gained 212 points. The tech-focused Nasdaq was up 67 points.

Global oil prices moved higher following a report from the International Energy Agency that indicated firmly global demand heading into next year as China's economy reopens and sanctions limit the sale of Russian crude.

The Paris-based IEA said global demand is likely to rise to around 101.6 million barrels per day next year, a level that falls largely in-line with forecasts published yesterday by OPEC. Global production, however, is likely to exceed demand over the first few months of next year, helping overall supplies thanks in part to record output rates from the U.S. and Saudi Arabia.

Energy Department data, however, showed a bigger-than-expected increase in domestic crude stocks, which rose by 10.2 million barrels last week, keeping broader market gains in check.

Brent crude contracts for February delivery, the global benchmark, were last seen $1.22 higher on the session at $81.89 per barrel while WTI contracts for January were marked $1.18 higher at $76.57 per barrel.

Overnight in Asia, stocks were modestly higher amid optimism that China's ongoing loosening of Covid restrictions will rekindle consumer and business activity in the world's second-largest economy, although a closely-tracked survey of short-term economic projections from Japan showed a pullback in sentiment that suggests firmer headwinds in the region heading into the start of next year.

The region-wide MSCI ex-Japan index was marked 0.98% higher heading into the close of trading while the Nikkei 225 closed 0.72% higher in Tokyo.

In Europe the region-wide Stoxx 600 was marked 0.16% lower at the start of trading while London's FTSE 100 fell 0.10% as both markets braced for interest rate decisions from the European Central Bank and the Bank of England tomorrow in Frankfurt and London respectively.