GM. This is Milk Road, the newsletter that is here to remind you that even though the Fed hasn’t hiked rates yet, they might, so you should probably freak out just to be safe.
It’s John Gillen here, and I’ll be taking over our Tuesday editions with a macro-focused look at the markets.
As you know, the macro world is flooded with indicators, making it hard to actually see the signal; that’s why we built the MRMI (Milk Road Macro Index), a tool that combines 20+ of the most important macro indicators into a single, easy-to-follow metric. And every Tuesday, I’ll break down where the MRMI stands and what’s driving markets this current week.
TL;DR: It’s Macro Tuesdays with John G. Strap in.
Here’s what we’ve got for you today:
- ✍️ A hawkish FOMC meeting brings caution.
- 🎙️ The Milk Road Show: The Metric That Predicted Bitcoin’s Last Bottom Is Back w/ Julio Moreno.
- 🍪 Join us: We’re looking for a new analyst!
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A HAWKISH FOMC MEETING BRINGS CAUTION
The Milk Road Macro Index (MRMI) pulled back from +0.25 to +0.12 this week as the FOMC resolved last week's central question exactly as the downside scenario described.
Rather than the balanced hold that would have let the financial conditions recover, consolidate, and tip the MRMI into LONG, the committee delivered a dot plot that flipped to signal a hike.
For what it’s worth, it still seems like Warsh is not going along with this, and he seems to be trying to change the committee’s mind. He announced five task forces aimed at completely reevaluating how the Fed does just about everything.
Nevertheless, the 2-year yield surged more than 16 basis points on the day, and the growth impulse index (GII) fell another -0.31 to -0.62. All of this dragged the Market Momentum Index down -0.12 to +0.47.
What's notable is how well the market absorbed the shock on other dimensions. Breadth held at +1.40, and financial conditions barely moved at +0.62, confirming that broad post-ceasefire participation is sticky and preventing a deeper MMI decline.
This is a good sign for the bulls and seems to show that the market is still holding strong. The market is repricing rate expectations without broadly selling equities.
Bullish!
The economy pillar is telling a nearly identical story from its own data. Stress edged up only +0.05 to +1.91, the macro buffer drifted to +0.40, GDPNow held near 3.0%, and jobless claims eased to 226,000. Nothing too concerning here for the moment.
Growth is the area showing weakness on the economic side. Growth is below trend but not breaking, and the inflation direction axis stayed exactly at +0.30.
So both the economy and the market are now aligned around the same unresolved tension. The real economy is soft enough that the expansion looks unconvincing, inflation is no longer cooling, and the FOMC seems to be leaning more toward a hike than a cut.
Yet nothing in the realized data has cracked sharply enough to push stress higher or drag breadth down.
Once again, everyone is asking, "When will this resolve?”
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MAY PCE PRINT COULD TILT MARKETS
Well, this tension could last for a while, but we might get an answer on Thursday, June 25th, with the May PCE release. That’s what we’re watching for now.
The April headline PCE was already at 3.80% and core at 3.30%, well above target, and a May print at or above the Fed's freshly-raised 3.60% forecast would push the inflation direction reading above +0.30. This would accelerate macro buffer erosion, and give the current skeptical growth read harder backing.
So all of this unresolved tension is why we’re landing back in the caution zone for now. This makes a sustained move to LONG genuinely difficult.
However, a softer number on PCE would do the opposite. Validate breadth and financial condition resilience, give growth room to stabilize, and put the MRMI back within reach of the bullish +0.25 LONG threshold.
Wrapping up
One big final point to put on all of this, Warsh has made it clear that he is going to change the Fed. A lot. Fast.
All of this could shift if Warsh comes out with a new way of measuring and reacting to inflation. Or if he changes the balance sheet management. Or many other things. He’s also ending forward guidance and going to allow the market to lead the Fed on some things instead of having the Fed lead the market.
Trump hired Warsh to cut rates. I don’t know what exactly he is going to do, but I do know that he and Treasury Secretary Scott Bessent have a plan. We will have to see what that plan is and how well it works.
Lots to watch for as we get more information.
If you want to see how our team of PRO analysts is navigating all of this in their portfolios, and get notified the moment they make a trade - try Milk Road PRO for a buck for 7 days, here!
In the meantime, stay safe, stay educated, and stay bullish!
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