Observers say signs the world's top economy is feeling the effect of long-running monetary tightening has given the bank room to take a more dovish approach to fighting inflation, which is sharply down from the four-decade highs seen in 2022.
That, combined with several Fed decision-makers indicating they are in favour of holding rates where they are, has given a much-needed shot of confidence to traders at the end of a tough year.
And the latest reports provided further optimism.
The Fed's Beige Book summary of the economy showed activity had slowed in recent weeks and the labour market continued to cool -- policymakers have said some softening in jobs would be required in order to get inflation back to their two percent target.
Gross domestic product expanded quicker than expected in the third quarter and consumer spending growth slowed slightly.
The readings suggest the Fed is managing to control prices while not causing too much pain for the economy.
Eyes are now on the release of the personal consumption expenditures (PCE) index -- the bank's preferred gauge of inflation -- with forecasts pointing to a further retreat. The core reading came in slightly lower than expected, data showed Tuesday.
"The Fed could find themselves in a 'sweet spot'," Jeffrey Roach at LPL Financial said.
"Inflation is trending lower, the consumer is still spending -- but at a slower pace -- and the Fed could end its rate hiking campaign without much pain inflicted on the economy."
Traders are now predicting a cut in the first half of next year.
Cleveland Fed boss Loretta Mester indicated she would be in favour of a third straight pause at the December meeting, while her Atlanta colleague Raphael Bostic said he was confident inflation was coming down.
The comments followed similar utterances from other policymakers earlier in the week, though Richmond Fed chief Thomas Barkin warned of the need to keep the option of another hike open if inflation flares again.
Bank of Singapore's Mansoor Mohi-uddin warned that the economy would likely face headwinds in 2024 but remained upbeat on the outlook for equities.
"Less fiscal stimulus, rising unemployment and falling savings are all set to hurt economic activity in 2024," he wrote.
"We forecast the US will likely suffer a mild recession next year. But with core inflation also set to fall below three percent towards its two percent target, we think the Fed will start lowering its Fed funds rate each quarter, with 25-basis-point cuts in June, September and... December.
"The Fed's easing will be measured but will benefit risk assets."
Markets were subdued in early Asian trade on Thursday after a largely flat day in New York but they mostly recovered some of their mojo in the afternoon.
Tokyo, Hong Kong, Shanghai, Sydney, Seoul, Wellington, Jakarta and Taipei all rallied, though Singapore, Manila, Mumbai and Bangkok were in the red.
London, Paris and Frankfurt rose at the open.
Oil extended a two-day rally on a report that OPEC and its allies were mulling additional cuts of as much as a million barrels per day.
Saudi Arabia and Russia have already imposed massive reductions this year in a bid to support prices but the latest decision has proved tough as African producers push back against the move.
The grouping will hold an online meeting later Thursday to make an announcement.
- Key figures around 0810 GMT -
Tokyo - Nikkei 225: UP 0.5 percent at 33,486.89 (close)
Hong Kong - Hang Seng Index: UP 0.3 percent at 17,042.88 (close)
Shanghai - Composite: UP 0.3 percent at 3,029.67 (close)
London - FTSE 100: UP 0.2 percent at 7,436.59
Dollar/yen: DOWN at 146.97 yen from 147.22 yen on Wednesday
Euro/dollar: DOWN at $1.0955 from $1.0978
Pound/dollar: UP at $1.2700 from $1.2698
Euro/pound: UP at 86.24 pence from 86.43 pence
West Texas Intermediate: UP 0.8 percent at $78.47 per barrel
Brent North Sea crude: UP 0.6 percent at $83.56 per barrel
New York - Dow: UP less than 0.1 percent at 35,430.42 (close)
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