The Fed is widely expected to resume policy rate increases following its decision to pause in June. While we anticipate that July will bring the Fed's last rate increase of this cycle, we do not think the Fed is comfortable signaling that shift just yet. Policymakers appear more comfortable maintaining a hawkish stance for now.

The Fed's tone on recent inflation slowing will be key. Continued hawkishness could keep the curve bear flattening in the near-term as the market keeps penciling out 2024 cuts.

Though the Fed will try to talk tough, it won't resonate with the USD much. As a result, fade any Fed-inspired rallies, especially as soft ECI and PCE reports this week could reinforce the bearish USD disinflation theme.