The market is mispricing the Fed's interest rate policy amid banking turmoil, former Bridgewater CIO suggests

Stock futures were slightly lower on Wednesday as investors braced for the Federal Reserve’s next step in its inflation-fighting rate hike plan.

Futures tied to the Dow Jones Industrial Average fell 29 points, or 0.1%. S&P 500 futures fell 0.1%, while Nasdaq 100 futures fell 0.2%.

The major averages showed strong gains in the previous session. The Dow Jones Industrial Average added 316 points, or almost 1%. The S&P 500 jumped 1.3%, and Nasdaq Composite went up 1.58%.

The moves came as fears over the ongoing banking crisis showed signs of easing, with investors “heartened by the increasing likelihood that the end of Fed policy tightening is near,” said Brian Levitt, global market strategist for Invesco.

“Fed tightening cycles usually end with a crisis, and those crises tend to end with policy responses. That may help explain today’s market moves,” he added.

Investors are looking forward to the latest update from the Fed, at the conclusion of its two-day policy meeting on Wednesday. Most investors expect the central bank to do so stick to its sharpening and raise the interest rate by 25 basis points.

As of Wednesday morning, there is about an 85% chance of a quarter-point hike by the Fed, according to CME Group’s FedWatch tool. At the same time, there is about a 15% probability that there will be no hike.

“We think the Fed will take the next step, that 25 basis point hike, but probably wrap it in some pretty dovish language to indicate they’re close to the end, if not the end,” Neuberger Berman’s Erik Knutzen said. CNBC’s “Closing Bell.” “In a way, it almost doesn’t matter, it’s priced in. The most important thing is the broad liquidity provided by the Fed’s balance sheet and some of the programs that they put in place, the liquidity they provided last week.”

He added that it could lead to “significant tightening, as banks change their stance in this more challenging environment – and that’s the part that we think will have the biggest negative impact on the economy.”

Elsewhere, investors expect an update on the latest reading on MBA mortgage applications. There are also a handful of companies due to publish results on Wednesday, including Tencent and Winnebago.