According to Ipek Ozkardeskaya, Senior Analyst at Swissquote Bank, the Fed may even drop its expectation of a rate cut in 2024 altogether, which would be the most dovish statement it could reasonably make at this point, given the latest economic data.

"Speaking of data, figures released yesterday came to back the idea that the Fed's inflation battle doesn't necessarily continue to move toward the right direction," Ozkardeskaya said.

The employment cost index rose more than expected in Q1, while consumer confidence sank below 100, which should result in slowing spending to help tame inflation – a trend that has not yet been seen.

The S&P 500 fell more than 1.5% yesterday, posting its worst performance this year, while the US 2-year yield advanced past 5% ahead of the Fed decision, and the US dollar extended gains for the fourth month.

Investors will be watching ADP, JOLTS, and PMI numbers today, but the strong jobs data and notable rise in US inflation in the first quarter cannot be ignored, and the Fed must address the issue by keeping rates higher for longer.

In contrast to the Fed's dovish hopes, AI-related stocks lived up to high expectations in Q1, with all but one of the "Magnificent 7" stocks surpassing market expectations. Amazon posted the best beat, with its AWS cloud platform growing 17% year-on-year and advertising services jumping 24%.

However, a weak sales forecast for the current quarter tempered optimism around Amazon's Q1 results, suggesting that AI growth may level out in Q2 and trigger some profit-taking in tech stocks.

In Europe, the Eurozone exited recession in Q1, growing at its fastest pace in 18 months, while core inflation slowed less than expected in April. These minor surprises could have weighed on European Central Bank (ECB) doves, but traders were preoccupied with pricing in Fed expectations, preventing the euro from countering the increased bullish pressure on the dollar.

In the energy sector, US crude slipped below $82 per barrel after the latest AI report showed an almost 5-million-barrel build in US oil inventories last week, with fading expectations of a Fed rate cut threatening the reflation boost.