They expect Fed officials would leave the door open for a rate increase at their December 12-13 meeting.
Later Wednesday, the US central bank was widely expected to leave interest rates on hold, but it was also likely to announce plans to trim its $4.2 trillion in bond holdings.
Six of the 11 major S&P sectors closed higher, with the financial sector's 0.8 percent gain providing the biggest boost. On Monday, the two benchmark USA indexes extended gains, albeit modestly, to close at record highs.
But with the Fed due to unveil its policy decision and economic forecasts at 1800 GMT, caution prevailed. Investors, however, awaited details on how the central bank will unwind its $4.5 trillion balance sheet.
The Fed is expected to hold interest rates steady, with investors looking for clues on its anticipated pace of further tightening later this year and next. "Given robust risk sentiment, a hawkish Fed surprise is likely to incite a sharp bound in the USD/JPY, which remains tied to the twists and turns of USA interest rates", he said. If they do, "it would require an adjustment of monetary policy", Yellen said. While the Fed's FOMC is nearly certain to keep policy unchanged, investors will be hoping to gain a clearer picture as to the possibility of a December rate hike.
Elevated risk appetite in Europe, meanwhile, saw the gap between Portuguese and Italian 10-year government bond yields narrow to levels not seen since the start of the euro zone debt crisis of 2010-2012.
The Fed stopped buying new bonds in 2014 but kept its balance sheet high by reinvesting the proceeds of maturing bonds. But they said the storms would not "materially alter" the country's economy overall. The dollar bouncing higher off multiyear lows hit earlier this month has hurt gold prices in the past week.
The Fed left rates unchanged for now, as was widely anticipated, but investors' expectations changed for December after the USA central bank signaled one more rate hike by year-end despite recent weak inflation readings. "And our forecast is for rates to rise a further three times next year, as the economy performs better than the MPC's forecasts now envisage".
THE QUOTE: "The market is basically in a holding pattern until the Fed announcement", said Quincy Krosby, chief market strategist at Prudential Financial.
The Federal Reserve is leaving interest rates alone to give the economy room to keep growing.
Zandi said with the unemployment rate "falling dramatically" and nearing four percent, inflation eventually will follow.
The Fed raised rates by a quarter point in March and June and its current target range is now at 1.00-1.25 percent.
Although the Fed has been troubled by the drop in USA inflation, Yellen and other officials have attributed it to short-term factors, such as changes in cellphone plan pricing, that should diminish in the coming months.