The Federal Reserve left rates unchanged this afternoon, and subtly upgraded its assessment of labour markets and growth, disappointing those expecting a more dovish bias and lending the dollar some much-needed support.

In the widely-expected decision, the Federal Open Market Committee voted by a consensus-driven 10-to-2 margin to maintain the target range for the federal funds rate between 3.50 and 3.75 percent. Trump appointee Stephen Miran again dissented from the majority in favour of a bigger move, joined by Christopher Waller, who is seen as a potential candidate for Chair when Jerome Powell’s term ends.

In a tweak to the statement setting out the decision, officials acknowledged that “economic activity has been expanding at a solid pace,”—stronger than the “moderate pace” described previously—and noted that although “job gains have remained low, the unemployment rate has shown some signs of stabilisation”. A previous reference to inflation “moving up” was replaced with a sentence noting that it is now “slightly elevated”, and where policymakers previously said they were concerned about downside risks in the labour market, they now say they are “attentive to the risks on both sides” of the dual mandate, suggesting that the bulk of the committee sees current rate settings as near neutral.

As is customary, the statement language stopped short of signalling future moves, and other parameters were left largely unchanged.

The dollar is holding some of this morning’s gains and Treasury yields are inching higher on the policy-sensitive end of the curve as investors reduce bets on a second rate cut coming before year end. We think this hawkish repricing could have further to run if incoming data continues to surprise to the upside.

The dollar climbed earlier in the session when Treasury Secretary Scott Bessent said the “US always has a strong dollar policy,” telling CNBC that authorities were “absolutely not” intervening to support the yen. While that may be strictly true—there’s been no evidence of official buying activity thus far—markets aren’t entirely convinced that coordinated intervention is off the table, and neither the dollar nor the yen has fully retraced its moves since Friday, and for our part, we’re left wondering … if this is a strong dollar policy, what would a weak dollar policy look like?