The S&P 500, tracked by the SPDR S&P 500 ETF Trust (NYSE:SPY), hit fresh record highs during Tuesday morning trading and closed up 0.04%, marking its seventh consecutive day of gains, just ahead of the Federal Reserve's highly anticipated interest rate decision.

The performance of the index tracking the largest 500 U.S. companies by market capitalization was in line with other major indices. The Invesco QQQ Trust, Series 1 (NASDAQ:QQQ), which tracks the tech-heavy Nasdaq, and the SPDR Dow Jones Industrial Average ETF (NYSE:DIA) both closed broadly flat for the day.

However, small-cap stocks outperformed their larger counterparts, as the iShares Russell 2000 ETF (NYSE:IWM) finished 0.8% higher.

Policymakers gathered on Tuesday for the two-day Federal Open Market Committee (FOMC) meeting, with the interest rate decision expected on Wednesday at 2:00 p.m. ET.

Market expectations are mixed, with CME FedWatch data indicating a 65% chance of a 50-basis-point rate cut and a 35% chance of a smaller 25-basis-point cut. This level of uncertainty is unusual on the eve of a Fed decision.

Expectations for a larger rate cut fell slightly after August retail sales came in stronger than anticipated. Retail sales increased by 0.1% month-over-month, decelerating from July's robust 1.1% growth but beating forecasts of a 0.2% decline.

The unexpected strength in consumer spending has cast some doubt on the need for a significant rate cut to support the economy.

An overwhelming consensus among Wall Street analysts anticipates a 25-basis-point cut, yet JPMorgan Chase stands among the outliers predicting a 50-basis-point reduction.

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