The writer is chief market strategist for Europe, Middle East and Africa at JPMorgan Asset ManagementMarkets are still parsing the implications of the early Christmas present delivered by Jay Powell during his December press conference with comments signalling a sharp shift in the US Federal Reserve’s stance on interest rates.

As the initial wave of excitement over the shift fades in the new year, there is now a considerable amount of head scratching regarding the change of heart that came just a few weeks after the US Federal Reserve chair was still warning of the possibility of even higher rates. Given the scale of the move in both stock and bond prices since the comments, this does warrant further examination.

The argument Powell has put forward is that the outlook for inflation has improved significantly, despite resilient activity. As such, the Fed is now increasingly convinced that economic growth can continue at trend, unemployment can stay low, and it will still sustainably meet its 2 per cent target. In contrast to what it thought earlier in 2023, a recession is no longer required.