GM. This is Milk Road Macro, the newsletter that makes rate cut expectations feel like waiting for a delayed flight: “It’s coming… just not yet”.
Here’s what we’ve got for you today:
- ✍️ Everything you need to know about where inflation is heading next.
- 🎙️ The Milk Road Macro Show: Stage 4 Market Decline: The Phase Where Markets Fall 7x Faster w/ Chris Vermeulen.
- 🍪 Fund managers are bullish but worry companies overinvest.
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Prices as of 10:00 a.m. ET.
EVERYTHING YOU NEED TO KNOW ABOUT WHERE INFLATION IS HEADING NEXT
U.S. inflation is continuing to slowly cool.
After inflationary worries in 2025 - the latest data shows that those concerns may be behind us, at least for now.
This is good news for future Fed rate cut expectations - with further easing expected later this year.
And with economic growth remaining resilient - the Goldilocks economic regime remains in place (growth up, inflation down).
Generally, a bullish outlook for asset markets.
So, what’s the latest inflation data?
Where is inflation heading next?
And what’s the latest with Fed rate cut expectations?
Let’s take a look…
What’s the latest data?
CPI (year-on-year) decelerated to 2.4%, from 2.5% in December.
This was the lowest CPI print since 2021.
Core CPI (year-on-year) - which strips out the volatile food and energy segments - remained at 2.5%, following 2.5% in December.
But it’s still generally sliding lower.
Looking further into the details above, Core Goods prices (yellow bars) rose at the slowest pace in six months, potentially signaling that any tariff inflationary effects are in the rear-view mirror.
Core Services (blue bars) remain the sticky factor.
In a note, Wells Fargo economists wrote:
“On balance, we found today’s report to be encouraging. Tariff-induced price hikes probably have not fully worked their way through the data, but we are closer to the end than the beginning of this source of higher prices.”
So, where is inflation heading next?
Services inflation remains the main sticking point - and one big contributor to this is the shelter component.
Most of the excess YoY inflation still stems from shelter.
But as I’ve highlighted before, official government shelter data is a shambles and significantly lags behind real-time private market indicators.
Basically, today’s CPI shelter numbers still include rent hikes from 15 months ago.
The Case Shiller National Home Price Index is a good leading indicator for where the official CPI shelter component is heading (down).
This will continue to put downward pressure on the official CPI number, looking ahead.
However, real average weekly earnings rose 1.9% YoY - the highest since March 2021.
Good news that people are earning more, but potentially an extra inflationary factor.
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EVERYTHING YOU NEED TO KNOW ABOUT WHERE INFLATION IS HEADING NEXT (P2)
Elsewhere, we can look at market-derived expectations of future inflation (inflation swaps).
One-year and two-year inflation swaps signaled a sharp disinflationary impulse through the second half of 2025.
They’ve now started to perk up again in recent weeks, but are still generally low, forecasting roughly 2.4% average inflation across the next 1-2 years.
This means that the market is on board with the disinflation theme - but isn’t pricing a huge collapse in inflation.
It’s just steady as she goes.
The price of crude oil is also showing some signs of life - and is an important signal to watch.
Crude oil is heavily correlated with CPI because it is a big business input cost.
Overall, I think there’s still a fairly strong disinflationary impulse continuing currently.
I think it’s likely we see CPI continuing to generally cool in the coming months.
But keep an eye on crude oil and other commodities - spiking prices here could halt the CPI downslide.
What’s the latest on Fed rate cuts?
Last week, we saw two important economic data points.
A strong labor market report (potentially bad news for future Fed rate cut expectations).
And then a CPI report signaling a continued cooling in inflation (potentially good news for future Fed rate cut expectations).
After these two data points were digested, interest rate traders priced in a total of more than two Fed interest rate cuts for 2026.
But cuts are not expected to begin until after the current Fed Chair Jerome Powell leaves his role in May.
What does it all mean for asset markets?
This is a relatively positive position for asset markets to be in - the cutting cycle is still very much alive, and markets can look ahead to further Fed easing.
As long as growth is resilient and recession risk is low - further Fed rate cuts remain a “good thing” for markets.
And right now, economic growth momentum is accelerating strongly.
However, in the short-term, the stock market reaction to Friday’s inflation report was somewhat concerning.
The S&P 500 attempted to bounce, but then failed - which could be considered a “news failure” if things continue to slide this week.
Wrapping up
The general direction for inflation is still down.
This was a mostly positive inflation report.
Inflation seems to be generally “under control” for now - and there’s little signs of an imminent spike higher.
But it’s still above the Fed’s “official target” of 2%.
With the recent signs of a labor market stabilization, Fed officials will likely want to see further inflation progress before committing to interest rate cuts.
STAGE FOUR DECLINE WARNING SIGNS 📉
In today’s episode, we sat down with Chris Vermeulen of The Technical Traders to talk about his “Stage Four” decline framework and why technicals suggest elevated sell-off risk. He shares a rules-based approach to follow price action, not narratives.
Here's what you'll hear:
- What a Stage Four decline is, and why he sees markets nearing the end of a long bull phase.
- The S&P 500 setup near ~7,000, and what moving averages would signal before he exits.
- Why Nasdaq and MAG7 look weaker, plus the key 24,400 to 24,500 support zone to watch.
- His playbook: bigger cash, selective ETFs (inverse, TLT, USD), and strict stops, targets, and exits.
Hit play and see for yourself 👇️
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BITE-SIZED COOKIES FOR THE ROAD 🍪
There’s currently a daily panic about AI disruption sweeping different stock market sectors. First, software stocks took a hit, then wealth management and transportation sectors were sold off amid fears of AI eating into businesses.
Fund managers are still bullish but are worried about companies overinvesting, according to Bank of America’s Fund Manager Survey. Macro optimism improved in the latest survey, but investors now favor strengthening balance sheets over increasing CapEx.
Sweden is considering a historic shift: adopting the euro currency. If a shift does firm up, it could bolster the euro’s credibility at a time when dollar dominance in world trade and as a reserve currency is being questioned.
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