GM. This is Milk Road, the daily newsletter that makes crypto feel less like rocket science and more like riding a bike.
Here’s what we’ve got for you today:
- ✍️ Battle lines just got drawn at the Fed.
- 🎙️ The Milk Road Show: Ethereum Is Either Failing… Or Evolving Into Something Much Bigger w/ John Gillen.
- 🍪 Saylor: AI and robots are about to reshape everything.
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BATTLE LINES JUST GOT DRAWN AT THE FED
Battle lines are being drawn for control of the Federal Reserve.
Kevin Warsh just stepped in as the new Fed Chair (Trump's pick), and he wants to cut rates.
Meanwhile, Christopher Waller (sitting Fed governor, backed by outgoing Chair Jerome Powell) just gave a speech in Frankfurt essentially pushing for the opposite: hold rates, possibly hike.
He went as far as calling the idea of rate cuts right now "just kind of crazy."
The June 16-17 FOMC meeting (the Fed's rate-setting committee) is Warsh's first as Chair, and it could also go down as the most divisive meeting in the institution's history.
Why this is relevant to your crypto portfolio:
Rate cuts = liquidity moving into risk assets (like crypto) = typically positive for prices.
Rate hikes = the opposite.
Here’s each side of the argument, starting with Warsh:
He thinks we're at the front end of a massive deflationary wave driven by AI.
The cost of running frontier AI has dropped from $30 per million tokens (the unit AI gets billed in) in early 2023 to literal pennies today.
And Warsh believes that by the end of 2026, today's frontier capabilities will be near-free.
When the cost of intelligence approaches zero, the cost structure of every industry that touches it falls too.
His warning: the Fed is running on models from 1978 that treat any growth as inflationary - but hike into a productivity boom, and you strangle a non-inflationary expansion.
Warsh points to the 1990s for comparison, when Alan Greenspan held rates steady through the internet productivity boom.
Output per hour grew 2.7% annually while inflation dropped to 1.9% (the Goldilocks economy).
Warsh thinks that same bet is on the table again…
But there’s a counterargument being made.
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BATTLE LINES JUST GOT DRAWN AT THE FED (P2)
The counter to Warsh’s theory:
AI has actually added about 0.3 percentage points to core PCE (the Fed's preferred inflation gauge) so far.
Microsoft hiked M365 by 30%. Adobe raised Creative Cloud Photography by 50%. Intuit pushed QuickBooks up 45%. All due to AI features.
Almost everyone agrees AI will eventually be deflationary - the fight is over when it shows in the numbers.
Waller's side of the argument (the Powell faction):
His recent Frankfurt speech was a data dump that pointed the other way.
Inflation is moving in the wrong direction, and the energy shock from the Iran/Middle East conflict is bleeding into everything else.
The receipts:
- CPI up 0.6% in April.
- About half of all CPI categories up 3%+ this year.
- Manufacturing input prices jumped from 59 to 84.6 in three months (matches peak pandemic supply chain crisis levels).
- PCE inflation estimated at 3.8% year-over-year (3-year high).
- Core PCE at 3.2% (2.5-year high). 👇
The point Waller leaned on hardest:
The Fed's 2% inflation target has now been missed for six straight years, and he thinks one more shock could un-anchor long-term inflation expectations entirely.
(Translation: people will stop believing that inflation will move back down, becoming a self-fulfilling belief.)
And the meeting minutes from April’s FOMC showed a growing faction of voting members siding with him. They argue inflation pressures are bleeding well beyond energy.
So where does this all land?
The whole fracture hinges on one geographic chokepoint: The Strait of Hormuz, where roughly 20% of global oil flows.
If Iran tensions drag past June → the Strait stays disrupted → oil stays elevated → inflation keeps running hot? Waller's faction could be looking at a win.
(Potentially turning Warsh's first meeting as Fed Chair into a public defeat, with rate cuts getting pushed deep into 2026.)
If the Strait reopens → oil unwinds → the energy shock washes out fast → inflation worries collapse? Warsh could carry the room.
Pair that second scenario with the CLARITY Act finally passing, and you've got potential jet fuel for the crypto market.
If you want to track how this plays out, and get the inside word on the tokens best positioned to benefit from the Fed’s June rate decision - join Milk Road PRO!
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Saylor: AI and robots are about to reshape everything. People with power, fame, influence, and distribution will win in this new world.
Jordi Visser: The AI bubble crowd is wrong. The companies funding AI have no debt, better balance sheets than the government, and are paying for it with free cash flow.
All things macro: the fight for the Fed & defensive strikes in the Strait…
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