As had been widely expected, the Federal Reserve hiked interest rates and telegraphed at least one additional move this year as policymakers grapple with rising inflation risks — putting the central bank on a hawkish footing that should help stabilise the dollar. After two days of discussion, the Federal Open Market Committee voted unanimously to raise the target range for the federal funds rate between 3.75 and 4.00%, matching market expectations that had built after August’s strong jobs and inflation reports.

In a brief statement setting out the decision, the committee again acknowledged persistently-high uncertainty but noted that economic activity was expanding at a “solid pace” and described domestic spending as “resilient”, adding that job gains were keeping pace with the workforce and that the unemployment rate had changed little. Policymakers noted inflation levels remained “elevated” and said “Today’s policy action will support a timelier return to the Committee’s 2% goal”.

Although the statement language stopped short of signalling future moves, the all-important “dot plot” Summary of Economic Projections showed the median policymaker expecting to hike rates once more before year end—a hawkish upgrade from the cuts that had previously been expected. Median core inflation expectations were modestly lifted to 3.4% for this year and 2.5% next, up/down from 3.3% and 2.5% in June’s update. Projections for the unemployment rate were dropped to 4.1% for both 2026 and 2027, and growth forecasts were slightly upgraded to 2.3% and 2.4% from 2.2% and 2.3%, respectively. Chair Warsh again recused himself, leaving 18 of 19 officials submitting dots.

The dollar is grinding higher against all of its major rivals and Treasury yields are edging up across the policy-sensitive end of the curve as investors incrementally raise expectations for another hike by the central bank’s December meeting. Longer-dated yields, particularly at the ten-year horizon, are coming down as the decisive move helps restore confidence in the central bank’s commitment to fighting inflation.

Chair Kevin Warsh is unlikely to provide clear guidance on the rate trajectory ahead during the post-decision press conference, but could be drawn into commenting on what his task forces—particularly the inflation framework group—are thinking about how the central bank defines and sets its price growth targets. Barring a major surprise or misstep, the dollar should find itself on firmer footing from here, as the “debasement trade” fades and investors demand a smaller premium for holding US Treasuries.