"While no change in monetary policy is expected, investors are awaiting the market's reaction to the post-meeting statement" which "might signal the Fed's next move," said Frederic Ruffy, analyst at Optionetics.
The Dow industrials were up 31 points at 13,340, just off a new record high of 13,344. Leading the Dow were shares of Honeywell Inc. , Verizon Communications , JP Morgan Chase & Co. and McDonald's Corp. .
"Some expect to hear a friendlier, more accommodative Fed," Ruffy said. "The market might get thrown for a loop, however, if the committee appears more hawkish instead."
Investors hope that a housing-led economic slowdown will lead the central bank to eventually cut interest rates to stave off a hard landing for the economy. But with few signs that inflation is abating, the central bank has maintained a slightly hawkish outlook.
International Business Machines , also a Dow component, rose 1% after being upgraded to buy from neutral at Goldman Sachs after the technology giant's buyback move.
Weighing on blue chips, Walt Disney & Co. dropped 1.2% after the entertainment giant didn't generate as much revenue as analysts had forecast, though its 27% profit rise came in ahead of forecast.
The S&P 500 index rose 1.6 points to 1,509, while the Nasdaq Composite lost 2.6 points to 2,569.
Tech-leader Cisco Systems dropped 6.3% after predicting slowing revenue growth. The networking gear producer reported a 34% profit rise and 21% revenue rise.
By sector, telecoms , networking , internet led the declines. Semiconductors , airlines , and gold fell.
Trading volumes showed 744 million shares exchanging hands on the New York Stock Exchange and 1.1 billion on the Nasdaq stock market. Advancing issues topped decliners by 3 to 2 on the NYSE, while decliners topped gainers by 15 to 14 on the Nasdaq.
Fed clocks in
The Fed is due to announce its interest rate decision at 2:15 p.m. Eastern -- expectations in the market are that rates will be held at 5.25%.
"The market is universally positioned for this, with the only risk being that the Fed may change its language to be a bit more bearish on the economy than the market expects," said Carl Weinberg, chief economist at High Frequency Economics.
Time for pull-back?
Investors are also consolidating some of the market's record gains of the past two months. Through Monday's close, the Dow industrials had matched a 80-year old record of advancing in 24 out of 27 sessions. The average fell back on Tuesday.
"An acceleration in merger-and acquisition activity has caused the stock market to surge higher, despite [slowing] earnings growth and the weaker-than-expected economic outlook," said Bob Doll, global chief investment officer at BlackRock.
"Such divergences are not enough to warrant selling cyclical positions, but they do warn that the recent one-way ride up in equity prices could hit turbulence at any point in time," he said.
Bonds rose slightly, sending yields lower, ahead of the Fed decision. The benchmark 10-year Treasury bond rose 1/32 at 98 31/32, yielding 4.630%.
Crude oil futures were down 10 cents at $62.16 a barrel before weekly inventory numbers.
Gold futures also fell, losing 80 cents to $686.60 an ounce.
On the metals scene, Rio Tinto climbed over 6% on market speculation that the world's number one miner, BHP Billiton , launched a takeover offer. Rio Tinto said it's not aware of any approach.
The Rio Tinto gains come amid a number of consolidation moves in the metals sector, including Alcoa's $27 billio hostile bid for rival aluminum producer Alcan . Previously there has been speculation that Rio or BHP may try to buy Alcoa.
Also on the M&A front, at least three groups of private-equity buyers are circling Alltel , The Wall Street Journal reported Wednesday. Alltel rose 1.2%.
Toyota Motor reported a 9% profit rise on 10% revenue growth in the January-to-March quarter, as U.S. and European sales growth offset flagging sales at home. The stock dropped 0.7%.
Toll Brothers , the luxury home builder, issued another profit warning, noting that tighter lending standards were affecting affordability at lower price points. Its shares were down 0.6%.
News Corp. , whose $5 billion bid for Dow Jones & Co. was disclosed last week, posted quarterly earnings of 27 cents a share, a 6.2% increase from the year earlier, and in line with analysts estimates. News Corp shares fell 1.6%.
Dow Jones is the publisher of this report.
By Nick Godt