GM. This is Milk Road Macro, the newsletter that reads inflation reports so you don’t have to squint at tiny Fed charts before your first coffee.

Here’s what we got for you today:

• ✍️ What yesterday’s inflation news might mean for risk assets

• 📊 How active are you in managing your investments?

• 🍪 The US collected a record $22bn in tariff revenue in May

WHAT YESTERDAY’S INFLATION NEWS MIGHT MEAN FOR RISK ASSETS

We saw new data for US inflation this week.

And it came in below expectations.

Markets initially reacted positively to the cool CPI reading.

And President Trump fired shots at the Federal Reserve to cut rates.

But is a new burst of inflation around the corner?

Today we’re breaking down what’s next for inflation and IF it even matters for risk assets.

Also, why is a legendary billionaire investor telling everyone to buy Bitcoin and gold?

Let’s take a look…

The details

Overall, the CPI print for May could be considered “good”.

Headline CPI rose 0.1% over the month and 2.4% annually. 

This was below expectations of 2.5%.

Core CPI, which excludes volatile food and energy prices, also rose 0.1% over the month and 2.8% year over year.

This was also below expectations of 2.9%.

This is now the fourth month in a row that US inflation data has come in below expectations.

While this is good to see, we’re still remaining stubbornly above the Federal Reserve’s target of 2% CPI...

But there’s definitely some “good” news in the details.

Shelter inflation, for example, is still slowing, as it has been since early 2023.

This has been the biggest contributor to inflation in recent years (more than 50% of all US inflation since 2019).

Although it’s still sitting at 3.86%...

Part of this slowing may be due to the housing market showing some strain from persistently high interest rates.

There are now 500,000 more sellers than buyers in the US housing market, which means house prices may need to adjust downwards…

But the most interesting part? 

The dreaded tariff inflation is not being felt… at least not yet.

Many experts had expected tariffs to start impacting consumer prices in the month of May.

But, no sign of that in the numbers.

Many segments of goods prices - including cars and apparel - actually declined in May.

We might have to wait for June inflation data to have a better picture on how tariffs may or may not be affecting inflation figures.

Moments after the CPI print…

President Trump was firing out Truth Social posts.

As he has done repeatedly since taking office, he fired a shot at the Federal Reserve.

He wrote: “CPI JUST OUT. GREAT NUMBERS! FED SHOULD LOWER ONE FULL POINT. WOULD PAY MUCH LESS INTEREST ON DEBT COMING DUE. SO IMPORTANT!!!”

You probably won’t need me to tell you that the chances of the Fed cutting interest rates by one full percentage point are zero.

So what’s the latest with Fed rate cuts?

The market is currently pricing a 99.8% probability that the Federal Reserve will keep interest rates unchanged at the next FOMC meeting next week.

The market currently expects the next rate cut to be 25bps in September.

With a current expectation of just under two 25bps rate cuts in total over the remainder of 2025.

The Federal Reserve is still in a “wait and see” mode, focused heavily on what will happen with inflation in the future.

So where will inflation go from here?

Forecasting inflation is always tough.

There are valid arguments that inflation may continue to grind lower over time, including ongoing shelter disinflation, and an “exporting” of deflation from China (China is in a pretty bad spot right now).

But there may be some inflationary pressures starting to bubble under the surface. 

The sudden big tariff announcement in early April contributed to a weak global growth outlook in April and May, creating a disinflationary impulse. 

But, as tariffs have been walked back, growth may now be picking up again.

Market indicators are signalling that inflation has not yet been “tamed” by any means.

We are not talking about a huge 2021/2022-style spike in inflation ahead.

But it feels a bit like a “mini covid” style “stop-go” for global trade.

We are seeing commodity prices (food and energy) rising across the board in recent weeks.

Important inflation-impacting commodities like crude oil (+22%) and copper (+18%) have both jumped higher since “Liberation Day” in April (when many thought a recession was imminent).

Platinum and palladium prices are also surging (critical for engine production and electronics).

While freight rates (shipping costs) are rising globally.

The Baltic Dry Index (measuring the cost of shipping commodities across the world’s oceans) has been rising.

Credit is also flowing in the US economy at the highest rate since early 2023.

Credit creation by US banks has been steadily increasing since early 2024, and has seen a burst higher in recent months (more credit = more consumption = potentially more inflation).

None of this looks very recessionary to me (despite what the doomers might tell you).

In fact, it looks like a decent pick-up in global growth (good news for risk asset prices).

But it also looks like there’s a risk of a small-scale inflationary burst ahead in the coming months.

Is rising inflation a bad thing for risk assets?

While inflation rising is obviously a bad thing for regular consumers, it’s normally a good sign for risk asset prices (as long as it’s not shooting rapidly upwards like late 2021/2022).

Inflationary regimes yield some of the greatest market returns.

For example, in 2016/2017 inflation was slowly rising - and this was an excellent environment for US stocks and Bitcoin.

But the inflation must come alongside at least “adequate” growth.

Decent growth and steadily rising inflation is a sign of an economy firing on all cylinders.

It’s a sign of an upturn in the business cycle.

It could be thought of as a “goldilocks” investing environment for risk assets.

A warning from a top investor…

Legendary billionaire investor Paul Tudor Jones is one of the few big names that I always stop and listen to.

In a feisty Bloomberg TV interview on Wednesday (I highly recommend watching), Jones argued that US policymakers will purposely let inflation “run hot” - up to 3.5% - well above the Fed’s official target of 2%.

He thinks Trump will likely appoint an "uber-dovish" Fed chair to replace current chair Jerome Powell (his term ends in May 2026) and they will cut interest rates rapidly.

He thinks this will be the solution to attempt to “outgrow” what he calls a “debt trap” taking hold in the US.

Inflation “running hot” and lower interest rates.

This will mean higher prices, lower purchasing power and greater risk for traditional portfolios, he said.

His prescription for investors?

“It would be some combination of vol-adjusted Bitcoin, gold, and stocks - that’s probably your best portfolio to fight inflation."

And zero bonds (bye bye 60/40 portfolios)…

That’s it for this edition - catch you for the next one!

POLL OF THE WEEK 📊

Last week we asked what the largest holding in your portfolio was and in true Milk Road fashion, Bitcoin/crypto won by a landslide:

This week, we want to know how active you all are when it comes to investing:

BITE-SIZED COOKIES FOR THE ROAD 🍪

Trump says a rare earth deal is “done” with China. He said China had agreed to supply US companies with magnets and rare earth metals, while the US would walk back its threats to revoke visas of Chinese students.

The US collected a record $22bn in tariff revenue in May. But that sum covers only 3% of total Government spending…

The US has ordered some diplomats to leave the Middle East. The decision comes after Iran threatened to strike American bases if it’s attacked over its nuclear program.

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