The benchmark S&P/ASX200 index was up as much as 0.45 per cent in the first 30 minutes of trading on Wednesday, but finished down 7.4 points, or 0.1 per cent, to 7,695.8. The broader All Ordinaries closed down 3.3 points, or 0.04 per cent, to 7,954.5.
While the Fed is almost universally expected to leave interest rates unchanged when it issues its latest decision during Australia's pre-dawn hours on Thursday, traders were weighing the possibility that the US central bank might change what are known as the "dot plots," its forecast for rates over the next few years.
J.P. Morgan economists were predicting a better than even chance the Fed would move the dot plots down to two interest rate cuts by year end, from the three it predicted at its December meeting.
Blerina Uruçi, the chief US economist at T. Rowe Price, said while the Fed changing its dot plot projections this early in the year would be unusual, it was a possibility given the recent pickup in both US employment and inflation.
"The main risk event is around the Dot Plot," she said. "The data have moved in a hawkish direction since December."
Another danger is that the Fed forecasts fewer rate cuts in 2025 than the four it forecast four months ago, Ms Uruçi added.
Seven of the ASX's 11 sectors finished lower, energy and telecommunications gained ground and consumer discretionaries and real estate closed basically flat.
The energy sector was the biggest mover, rising 0.6 per cent in a move propelled by uranium companies and coalminers. Paladin Energy rose 5.6 per cent and Whitehaven Coal rose 2.7 per cent.
In the heavyweight mining sector, BHP rose 0.5 per cent to $43.81, Fortescue was up 0.9 per cent to $24.75 and Rio Tinto climbed 0.8 per cent to $121.30.
South32 dropped 4.2 per cent to $2.99 after announcing Tropical Cyclone Megan had damaged critical infrastructure at its open-pit manganese mine on the island of Groote Eylandt in the Northern Territory, where operations are temporarily suspended.
Goldminers were down ahead of the Fed meeting, with Newmont dropping 2.7 per cent and Northern Star retreating 3.2 per cent per cent.
All of the Big Four banks gave up their gains to finish slightly lower. ANZ dropped 0.4 per cent to $28.69, Westpac dipped 0.3 per cent to $26.18, and CBA and NAB both edged 0.1 lower, at $115.65 and $33.91, respectively.
Tuas Limited rose 12.8 per cent to an all-time high of $3.78 after the Singaporean mobile network company announced its revenue was up 38 per cent to $S54.7 million ($A62.4 million) in the six months to January 31.
Cryptocurrencies were pulling back after a red-hot run over the previous three weeks.
Bitcoin was trading for $US61,700 ($A94,670), down five per cent in the past 24 hours and nearly 15 per cent in the past seven days.
The Australian dollar was buying 65.30 US cents, up from 65.17 US cents at Tuesday's ASX close.
ON THE ASX:
* The benchmark S&P/ASX200 index finished Wednesday down 7.4 points, or 0.1 per cent, to 7,695.8
* The broader All Ordinaries dropped 3.3 points, or 0.04 per cent, to 7,954.5
CURRENCY SNAPSHOT:
One Australian dollar buys:
* 65.30 US cents, from 65.17 US cents at Tuesday's ASX close
* 98.96 Japanese yen, from 98.09 yen
* 60.08 Euro cents, from 59.96 Euro cents
* 51.34 British pence, from 51.27 pence
* 108.04 NZ cents, from 107.63 NZ cents
