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>> Hello everybody and thanks for joining

us for this special edition of Bloomberg

Daybreak. I'm Nathan [music] Hager. The

US stock market is closed for the

Memorial Day holiday. Coming up this

hour as we kick off the unofficial start

of summer, we'll look at why this one

could be one of the most expensive

Memorial Days ever with Bloomberg's

Julia Fanzeres and Mark Decat. Plus

retail in focus for investors this week.

We preview earnings from Costco and Best

Buy with Bloomberg Intelligence senior

analyst Jen Bartashis and Lindsey Dutch.

But first, we have a special round table

on the economy and the future of the

Federal Reserve under a new chairman.

And for that, we're joined by Bloomberg

International economics and policy

correspondent Michael McKee and Anna

Wong, chief US economist at Bloomberg

Economics. It's great to have the both

of you with us on this Memorial Day

holiday. And Anna, I'll start with you.

How would you describe this economy that

new chairman Warsh is stepping into?

Well, he's stepping into a huge supply

shock. The Iran war has led to

re-acceleration and headline CPI.

However, he's also stepping in just as

the headline change in CPI may be

peaking. We are estimating that

May, the next report is where the

headline CPI will peak roughly around

a little bit over 4%. However, the

danger is whether there will be second

round effect onto the core.

But Kevin Warsh is also stepping in just

as a second supply shock is about to

hit, but it's not obvious right now.

That's showing up in as CPI. So, this

second round, or I don't know, maybe

like fifth round already in last five

years, is the AI driven type of

inflation

in China. memory chips and computer

software and storage drive.

We are seeing that peaking only in 2027.

So, I think generally year-over-year

inflation likely will peak in May and

then step down gradually, but then we'll

see another little bump toward the end

of the year.

And then in 2027, we'll see it

incrementally rising again after

falling. Potentially. It's very

confusing, but that's that's the

inflation picture that Kevin Warsh

inherited, a very confusing and

complicated one. Well, I think you've

spelled it out pretty clearly even if it

is a complicated situation here, but

just to put a bottom line on it, Mike,

it sounds like Chairman Warsh is

stepping into an environment where 2%

inflation

might be a ways off.

It's [clears throat] definitely going to

be a ways off. The Fed minutes of their

April meeting suggested that most

members agreed that it's going to be a

lot longer to get down to 2% than they

had been thinking because they're also

seeing

some, you know, bleed over into core

rates

from services and goods that they didn't

expect.

>> [snorts]

>> So, it's it's an inflation problem that

is kind of double for Kevin Warsh

because both the fact that there's not

much he can do about it.

It mingles with the fact that his boss

isn't going to be happy about it.

Well, let's talk about that a little

bit, Anna, because obviously Chairman

Warsh was nominated after serious

political pressure that President Trump

had been putting on former Chair Jay

Powell for months if not years. What is

the challenge for Chairman Warsh to

deliver on the rate cuts that President

Trump has made clear he wants. Well, we

don't know if he's going to deliver. You

know, at his confirmation hearing, he

vicariously denied the idea that he has

promised Trump rate cuts. And also, I

think a sizable portion of market

participants, including ourselves,

suspect that Kevin Warsh in fact is a

hawk at the heart of things. But the

reality is the market is already doing

the hiking for him, and he may be happy

about that. So, in the last 3 weeks

alone, we have seen 10-year yields

rising by roughly 30 basis point from

4.3 to now

4.6, and that is equivalent to almost 40

to 50 basis point of rate hikes.

Basically, the market has essentially

hiked twice

before Kevin Warsh even came on board.

It may be, just maybe, that in the next

6 months,

what he will see is a slowing economy

because the tightening of financial

conditions from higher yields will be

biting. And also, as I said, the

inflation on a year over a year basis

would have peaked in May, and it will be

coming down. And that could provide him

the cover of at least not hiking, if if

not cutting rates. Now, the the sell-off

in bonds, not just in the US, but

globally, has been pretty stunning to

watch over the last few weeks. It raises

a question, Mike, about whether it

matters for the Fed to try to catch up

with where the bond market is on rates.

Does it matter if the Fed keeps things

where they are when the Treasury

market's saying that uh

rates need to go up? Well, if you

thought they were going to be

up in the markets for some time, yes,

that would put pressure on the Fed. The

question is

uh it because this has been so volatile,

because, you know, from one Trump

headline to another, the Fed at this

point is is probably just going to be

content to sit back and wait and see

what happens not only with inflation,

but with the impact of the higher rates.

The question that is going to be on

everybody's mind as we go forward is uh

how much is this inflation, especially

energy price inflation, going to curb

demand and therefore put pressure on the

labor market and uh growth. If it

doesn't do that, then they're going to

have to start thinking about rate

increases, which they told us in the

minutes. If it does, then that takes

rate increases probably off the table.

So, it's a very confusing time, as as

Anna began the whole segment uh saying,

and we're just going to have to watch

and see what happens, which, of course,

Kevin Warsh said uh we don't want to be

data dependent, but they're kind of data

and headline dependent at this point. It

seems to be that way. We're speaking

with uh Bloomberg International

Economics and Policy Correspondent

Michael McKee and Anna Wong, Chief US

Economist at Bloomberg Economics. Let's

talk about the labor market, Anna,

because it seems like this low hire, low

fire environment we've been talking

about for quite some time continues to

roll along. Do you expect that to

continue even with rates where they are?

No, I don't. So, I I think that the

labor market indeed has stabilized for

several months now. We actually timed

the bottom of the labor market to be

around early fall, late summer last

year.

However, because of this low hiring, low

fire regime, it is still in a very

fragile state. And with 10-year yields

going to 4.6%, what I have found is that

whenever 10-year yields surpass around

the 4.5%

mark is when rates become very

restrictive. And immediately you see the

housing sector responding, which we are.

Many of these housing sector goods are

already seeing deflation. Also, we would

you would start seeing manufacturing

slowing. Right now manufacturing is

still doing very well because of the

war, but if rates continue to be this

elevated, the slowing is inevitable. And

on top of that, we are already now

seeing some signs that consumer uh

sentiment are as weakening. So, I think

one takeaway from this earning season is

that while the tax refunds so far this

year have provided a support for

consumers, shielded them from the higher

gasoline price, that cushion is going

away by the middle of the summer. And

so, if rates continue to be that high

through the end of the summer and the

war over Iran is not resolved, gasoline

price still

are at 4.3 dollar per gallon, then we

are going to see that weakening in

consumption. Mike, what do you how do

you account for the relative resilience

that we've seen in this labor market

despite all the

the headwinds we've been talking about?

Well, it's kind of an interesting

question because

as Anna's staff has pointed out, there

may be some reasons, statistical

reasons, and

other reasons why the labor market isn't

as strong as the Fed wants to think it

is.

But it does seem to be that everybody's

frozen in place at this point. There are

reasons to be optimistic about

productivity rising, and certainly

there's been a lot of spending on the AI

buildout that's keeping GDP higher.

The GDP numbers have been distorted by

weird trade situations because of the AI

imports and things like that.

Uh so, um,

right now, uh, companies aren't firing,

they're not hiring, they're just sort of

waiting to see what happens like

everyone else. And that's, uh, again,

just keeps everything sidelined, keeps

the Fed sidelined for now. Uh,

interesting point what what Anna was

just talking about with rates staying

high. Uh,

there's two things I would note. One is

that, um,

oil industry analysts say the prices of

oil and gasoline are going to remain

high for months. That, uh, the market

doesn't seem to be absorbing that idea

yet.

But the other thing is that there was an

interesting study that came out in the

last few days from one of the regionals,

uh, Fed banks, that said when people see

the central bank raising interest rates

or market rates going up, they think

inflation is going to follow. Now, the

idea of raising interest rates,

obviously, is to slow the economy and

uh, then,

inflation slows, but because that makes

borrowing more expensive in the short

run,

uh, people get more depressed when rates

go up, and so therefore that could also

have a negative effect on the economy.

So, that raises a question then for Anna

about what the risks are for the Fed

right now, whether the risks are in

balance when it comes to the dual

mandate, inflation and the job market.

It sounds like the Fed could be in a,

uh, a bit of a bigger box than we might

think. Is is is that what you're seeing,

Anna? I think the Fed's challenge right

now is to forecast the economy

correctly. And the Fed has lost a lot of

confidence over their own forecasting

capability. And when the central bank

does not believe that it can forecast

things, then it act in a very belated

fashion. So, if for example, if it

forecast, uh, if if it wrongly believe

that inflation is not transitory right

now, then and they go ahead ahead and

hike as the market as is now priced in

for them to hike.

And it turned out that it is transitory

after all, and the bite of that hiking

will hit the economy next year. This

actually jeopardize is is one way of

thinking about how why the

administration is attacking the central

bank. And so, the central bank

is under pressure to forecast correctly,

and I think Kevin Warsh role here is to

aside from thinking about monetary

policy and there's so and obviously he

cannot do much because he's just one

person, and he's facing a majority of

the FOMC who who leans hawkish. But,

what he can do is to go in and reform

the

the institution and increase the

forecasting capability of of the Fed.

And hence,

maybe that could distract the debate and

the headlines for a while away from, you

know, him not cutting rates as Trump

wanted, but

focus on what he is doing to reform the

Fed. What a complicated start to the

Kevin Warsh era. Thanks to both of you

for this. Great having you on with us.

That's uh Bloomberg Economics Chief US

Economist Anna Wong and Bloomberg

International Economics and Policy

Correspondent Michael McKee. Up next,

we're going to turn our focus from the

economy to earnings. What to expect from

Costco [music]

and Best Buy. It's 20 minutes past the

hour. I'm Nathan Hager, and this is

Bloomberg.

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Welcome back to this special edition of

Bloomberg Daybreak. I'm Nathan Hager.

[music] The US stock market is closed

for the Memorial Day holiday. We turn

our focus now to earnings. We've heard

from about 90% [music] of the companies

in the S&P 500 so far, but we do get

some key reports this week [music] from

a couple of high-profile retailers.

Let's start with Costco. They report

Thursday. Jennifer Bartashus covers the

membership-based wholesale giant. She's

a senior retail staples analyst for

Bloomberg Intelligence and is with us

now. And I'll just put this out there at

the beginning, Jen. I'm a Costco member.

I'm there like every other week. And

every time I go in there, it's like a

line all the way to the back of the meat

section just to get out the door. That's

got to be good for their results, right?

I mean, just to see that kind of foot

traffic. Is that still what we're

seeing?

Absolutely, Nathan. Um, you know, Costco

is just an engine that doesn't quit. Um,

and when you look at the the traffic

into their stores, it's consistently

strong. You know, and and part of the

current backdrop in the environment

right now is really playing into

Costco's strengths. Um, and what I mean

by that is people are looking for value.

Um, and so when when they're looking for

value, you're looking to maximize the

benefits of that membership and the the

the good prices that that that Costco

offers. And when I go by my Costco's,

the the there are several near me, the

lines for fuel are incredibly long right

now. Um, so, you know, people are

looking for that value. They're going to

Costco for that solution. And when

they're there for fuel, they're probably

also going into the warehouse. Um, and

that all all all tease up well for what

they're going to report this week. Yeah,

let's talk about the fuel because uh of

course they do sell it, but at a

discount, right? So, what does that mean

for their margins?

>> Well, what's interesting about fuel

sales is that it's usually retailers

sell fuel more for the loyalty

perspective than for the profit that

they generate off of it. And so, right

now,

a lot of the fuel that's being sold was

bought before the prices went really

high. So, that means, you know,

generally speaking, fuel margins should

be pretty strong. Now, as that inventory

gets replaced with higher costs, we're

going to see some volatility there.

And either way, the higher fuel prices

at the pump translate into higher sales

that are being driven off of the fuel

business, and that's always good for the

top line. Where do you see those sales

coming? I mean, Costco has such a broad

mix of products that they offer. Are

they selling some of the

the bigger appliances that you see at

the front of the store, or is it more

about the food? What are you expecting?

Right now, for for quite a while,

Costco's sales had had skewed a little

bit more to consumable categories.

But in the last two or three quarters,

we've seen a much bigger uptick in terms

of bigger ticket items. And we're at the

point of the year where people are

buying for the summer, right? And so, if

if fuel prices are high and people maybe

scale back on travel plans, or they do

do plan to do a little bit more

staycations,

>> You got to think that there's going to

be some differences compared to summer

and spring quarters of the past, right?

Considering where the macroeconomic

environment is right now. Do you expect

any changes based on that? Not

necessarily huge changes. You know, what

we've seen historically, when we've had

periods of very high gas prices, it

takes a little bit of time for consumers

to genuinely change their purchase

behavior.

Because most most consumers can weather

a short-term kind of shock in terms of

higher gas prices at the pump. But the

longer the higher gas prices last, the

more that consumer behavior does shift.

And and the shift that we typically see

is that people will start to consolidate

trips.

Um, so that instead of seeking, you

know, a few items at a bunch of

different retailers, they start to favor

retailers where they can buy more of the

items they want in the same place. Um,

so that kind of behavior, um, obviously

benefits companies like Costco. Um, just

as it benefits companies like Walmart

and Target where there's a broad

assortment and people can actually do a

complete shopping trip uh to meet all of

their needs. I'm kind of curious about

whether Costco could be looking for ways

to juice profit in some way, you know,

considering that they do try to keep the

prices for their items at a reasonable

level. But in terms of trying to get

more of a profit down the line, do you

see Costco thinking about things like

raising membership prices, making it a

little bit more expensive to get people

in the door? Is that Is that something

that could be coming down the line for

Costco customers? Um, probably not

anytime soon. I know Costco really they

hold a very very consistent schedule of

when they when they raise membership

prices and it's roughly every five

years.

Um, so we we just had a membership price

increase not that long ago. So they

probably won't pull on that lever right

away. Um,

and instead, you know, they have always

consistently talked about the fact that

they're okay with some volat- some

volatility from quarter to quarter with

regards to their their margins, you

know, or or their level of profit

because they put the consumer first. Um,

and so what we may see is a little bit

more margin pressure um in the next

quarter and, you know, in and maybe the

next towards the end of this year just

as as they try to absorb some of the

higher cost to keep things competitive

and priced right for their for their

customer base. Um, and if things extend

for too long, then we may see some

adjustments in in in what they have. But

the the beauty of the model of like

Costco is that it's

they can change what they offer in the

stores. So, if any one item or category

becomes too expensive, they can simply

shift into something else. And and their

shoppers love it because at the end of

the day part of the charm of Costco is

that treasure hunt mentality. You don't

know exactly what you're going to find

when you get there, but you're excited

when you find it. Um, and so they have a

lot of flexibility to help offset

pressures that arise in the business

with regards to costs

um that they can they can do and it

plays right into what their customers

value most about their format. Yeah, I

mean there are often changes to the

inventory in Costco, but it seems like a

couple of things that never change are

the $1.50 hot dog soda combo and the

$4.99 rotisserie chicken. Are are those

ever going to change?

I I think that those are the last things

Costco ever wants to change because it's

that it's that sense of stability, that

sense of reliability. Um, and you know,

they sell millions and millions of

chickens and hot dogs every year.

Um, and yeah, there is something to be

said for the volume of what you sell.

Um, but I think they happily would take

a loss on those areas if they had to in

order to keep that value you know, value

perception intact.

>> Now, this is definitely the time for a

hot dog. Thank you, Jen. Good having you

on with us. That is a Bloomberg

Intelligence senior analyst Jennifer

Bartashus and again, look for those

Costco earnings. They are due out on

Thursday. Also on that day, we get

results from a big consumer electronics

name. That would be Best Buy. And we've

got another Bloomberg Intelligence

senior analyst with us to preview those

results, Lindsey Dutch, who covers

retail and consumer hardlines for BI.

Great having you with us. Uh of course,

Best Buy has been guiding for just a 1%

increase in same-store sales uh this

quarter. I read your latest note. You're

saying even that may be too much to

expect. Why? So, the guidance for 1%

same-store growth, you know, really

assumed an increase in both March and

April, compensating for a decline in

February. And those gains were sort of

predicated on tax refunds, you know,

going to some of those consumer

electronic purchases. And with elevated

gas prices, you know, we think that

demand might have been muted. We also

heard from some early reporting um

retailers like Tractor Supply, who

specifically called out that they saw

that tax re- refund money was really

going toward the essentials and paying

down debt rather than splurging sort of

on a big-ticket item. Wow, that's a big

surprise considering uh in the past you

think about those tax refunds going to

some of those big-ticket items. So, what

can we expect from the guidance going

forward from Best Buy? What are you

looking for? So, I think when I look

across the board at at my coverage and

think about the consumer, it sort of

seems that the higher-income consumer is

still hanging in there. We're still

We're still seeing some resilience

there. But the lower-income consumer

might be pulling back even further, you

know, with these elevated gas prices.

So, for Best Buy, I think we have to

see, you know, where the first quarter

comes in. The comps are going to get a

little bit harder as we get further into

the year. Last year, we had the launch

of Nintendo Switch 2 that drove a big

gain in gaming. Computing has been

strong. Phones have been strong. But

they've been carrying growth for for a

couple of years now. So, the the comps

are are harder, and Best Buy really need

to rebound in demand for TVs and

appliances to really get back on the

growth track. Are you expecting to see

that kind of rebound in in some of those

bigger ticket items on the consumer

electronics side? So, I think the the

timing on the rebound is is tricky and

it might be a bit delayed. You know, we

heard results from Whirlpool and they

indicated that demand for big ticket

appliances is down. I also cover Sleep

Number Group, you know, they're they're

formally Tempur-Pedic big ticket

mattresses. They also revised their

demand forecast for this year down.

It does seem like consumers aren't

really dipping their toe into those big

ticket, you know, home type of items.

TV, you know, has a little bit more

promise. You know, there's some new

technology coming out mid this year that

that Best Buy has mentioned. We have

seen new product drive demand over the

past 2 years or so. So, there's a

possibility there, but we we have to

wait and see because that that big

ticket rebound just hasn't emerged in

other categories yet. You mentioned the

the tamp down potentially being driven

by these higher gas prices, of course,

that we're dealing with tied to what's

happening in the Middle East. Are these

big consumer companies

thinking about this as sort of a

temporary blip or is this something that

they think they're going to be needing

to deal with for quite some time? You

know, I think everyone's still in a

wait-and-see sort of pattern. How how

long will this last?

I think we're we are seeing some

consumer companies, you know, I cover

e.l.f. Beauty, a very different

business, but they're actually

considering rolling back price increases

that they took last year because they

think that the consumer is so

value-focused and so price-conscious

that they they need to bring prices

down. So, it's certainly a pressure that

retailers across the board are dealing

with

and and we're going to have to see how

that second half unfolds. Obviously,

second half is you know, seasonally very

important, very strong. So, we still

have some time for demand to recover by

then, but we'll have to see how it goes.

Yeah, wanted to ask you about that a

little bit because, you know, we're at

the start of you know, holiday driving

season right now, the unofficial kickoff

of summer, but just down the road we're

going to be getting into back-to-school

shopping season in in just a few months.

Do you expect to see anything from these

results about what Best Buy expects

from, you know, parents that might have

to buy their kid a laptop this summer

into the fall? Yes, I definitely think

that they'll discuss you know, computing

demand. As I mentioned, that has been

strong. It came into the year strong. I

think there's you know, pretty solid

expectations for that category. I think

that

you know, we're still a little bit

early, but that July 4th type of sales

could also be a good indicator. You

know, that back-to-college shopping

which which is really you know, I think

more in in Best Buy's playbook

will start to hit them you know, in that

mid to late summer season. And I think

so I think we have to see the sales

going into July and I think Best Buy

will work with their suppliers to make

sure that they're trying to offer value

to consumers, draw them into the door

and and support growth in some of those

key categories. All right, we'll be

looking forward to see what Best Buy

tells us later on this week. Thanks for

this Lindsey, great having you on with

us. That's Bloomberg Intelligence senior

retail analyst Lindsey Dutch. And up

next, [music] we'll tell you why this

may be one of the most expensive

Memorial Days on record. It's 37 minutes

past the hour. I'm Nathan Hager and this

is Bloomberg.

>> [music]

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Thanks again for joining us for this

special [music] edition of Bloomberg

Daybreak. The US stock market is closed

for this Memorial Day holiday. I'm

Nathan Hager. And if it feels like

you're paying more this holiday than you

have in Memorial Days past, you are

right. This unofficial kickoff of summer

is in fact shaping up to be one of the

most expensive on record. And for more,

we're joined by a couple of Bloomberg

News reporters who cover this economy,

Julia Fanzeres and Mark Niquette. Mark

covers the intersection of government

and politics with the US economy as

well. So, it's great to have both of you

with us on this Memorial Day holiday at

a time when even though things are more

expensive, it seems like people are

still determined to get out there in

some respect. What are you seeing out

there, Julia?

>> Yeah, it really is fascinating to see

that despite the higher prices, people

are adamant about going on their

vacations. And there has been some Bank

of America Institute data saying that

despite these prices, only 10% of people

surveyed wanted to change their trips.

So, what they are doing instead because

their budgets are being squeezed by

those higher fuel costs is they are

looking at different ways to save,

whether that is changing what hotels

they're going to, spending less nights

out, or even eating out less. But people

are adamant to get on the road and to

enjoy their Memorial Day vacations. What

are you seeing out there, Mark, in terms

of how the economy is affecting what

people are doing with their summer

plans? Well, it's it's kind of

surprising that we're seeing, you know,

the the the strong predictions of of

travel because of of what's happening

with gas prices. You know, since the US

war in Iran started in February 28th,

we've just seen gas prices spike and and

energy prices in particular just

affecting the economy and driving up

prices for a whole range of things,

including transportation costs and

packaging costs. But if you look just at

gasoline, we're having everybody getting

on the road for the Memorial Day

weekend. Gasoline today is at,

um,

what is it, $4.56 a gallon for regular

unleaded, and that's up $1.38 from a

year ago, this time last year, 43%. It

was $3.18 a gallon. And if you look, you

know, just you know, since the war

started, before the war started,

gasoline is up $1.58 a gallon on

average. This is across the country,

it's a lot higher in California and

other states, of course. And if you

look, you know, just a year ago, the gas

prices were were much, much lower. So,

you know, it's it's it's kind of

surprising that we're seeing people, you

know, still being willing to pay that,

but we're seeing record low consumer

confidence numbers coming out in in

surveys. So, I think in particular gas

prices are are driving people's, you

know, sour view of the economy. Is that

what you're seeing as well, Julia, that

the the view of the economy is souring

even if people are are still continuing

to get on out there and and hit the road

to to some extent? Are we seeing people

try to adjust to make those travel plans

happen? Absolutely. They are so

pessimistic about the economy right now.

They are more pessimistic, according to

some surveys, than they were during the

Great Depression, during COVID. These

higher gas prices, they are really

weighing on consumer sentiment and their

budgets. And a huge reason that people

still have to go out and drive, and the

reason that demand for gasoline hasn't

abated, is because gasoline, they say

it's an inelastic demand. People still

need to drive to work, they need to drop

off their kids at school. So, you still

see people on the road. Now, vacations

are another thing, but uh GasBuddy, who

tracks gasoline prices nationwide, has

said that people are really, really

hesitant to cancel any trips they've

been excited for. So, what you have been

seeing is a shift, whether it's oh,

you're now, instead of driving down to

Florida, you're going to drive maybe

only 2 hours away from where you

originally were, or we've spoken to some

people who plan on sleeping in their car

because they wanted to do a road trip

across the country. And so, but they

can't afford to pay for a hotel every

night. So, there are these minor changes

that are happening, whether it is you're

spending less time at a hotel, or even

food. We have actually seen with credit

card spending data a little bit of a

pullback with restaurants and food. And

that is usually the first place that

people start pulling back when their

budgets are tightening and when they are

trying to conserve some money.

>> interesting to hear you talk about that

as a minor adjustment when you think

about people literally sleeping in their

cars instead of staying in a motel room.

I mean, that tells you something. And

with a shift

away from restaurant spending as well,

what kind of ripple effect, Mark, do you

see

from the these higher gas prices and the

effect that it's having on the consumer?

Well, it's it's starting to sort of

ripple through to other products, like I

mentioned, in the economy. Particularly,

we're starting to see a big increase in

in food prices.

As Julia mentioned,

we're seeing all food

increasing prices for all food

increasing. But in particular, you know,

prices for things like beef and lettuce

and tomatoes. I mean, the beef alone for

your your Memorial Day cookouts is at

record levels because the country's

cattle herd is at its smallest in 75

years. But demand hasn't softened, so

prices have really gone up. The average

ground beef prices in April broke the $7

per pound threshold for the first time.

And steak is now past $13 a pound.

Tomatoes are up 40% compared to this

time last year. That's the biggest jump

since 2004.

So, you're just seeing a a host of, you

know, in particular, food products, but

other items that are important in our

economy, the prices are are going up.

And the fear is that these prices are

just going to keep going up. You know,

as as it relates to food, for example,

you know, the the economists tell us we

haven't yet seen the full impact of the

the war on food prices because a lot of

what's going to drive up food prices

later in this year and into next year is

the fact that farmers were not able to

get as much fertilizer because the

shipment of fertilizer was affected by

the war.

So, it drove down supply and it drove up

the price of fertilizer. So, farmers

used less fertilizer on their crops or

didn't use fertilizer at all. So, farm

So, yields are going to be come down

They're going to be down come harvest

time, and food prices are only going to

keep going up.

>> We're speaking with Bloomberg News

economy reporters Mark Niquette and

Julia Fanzeres as we head into this uh

potentially one of the most expensive

Memorial Days on record in this country.

Julia, we've been talking about the

price of gas, price of food, uh the

potential for these inflation

expectations to

potentially become unanchored. I mean,

what is a a breaking point for the

American consumer? Do you see one?

That's what everyone is looking at. What

is going to be the point where gasoline

prices are so high that people start

pulling back. Some people say that that

is $5 a gallon. Analysts and economists

say that's really when people start

trying to get creative, whether that is

lumping together their errands. They are

trying to either not fill up their gas

tank all the way. $5 a gallon is usually

the place where that leads to demand

destruction or people changing their

behaviors significantly.

But it really is unlike anything that

the economy has witnessed in a long time

because even though higher gas prices

were at the same levels in 2022 when

Russia invaded Ukraine, consumers are in

a different place now. In 2022, they had

higher savings. They were bolstered by

that. Right now, we are in higher

inflationary periods even before the war

in Iran. And now you've got sentiment in

a very low place. So, it's quite

possible that when gasoline hits $5 a

gallon, behavior will start shifting

significantly. And companies as well

have been flagging that these higher

prices and higher gas costs are going to

impact how consumers are spending. You

had Target, you had Home Depot, you had

Lowe's. Every one of those companies

warning about the shift in consumer

behavior in the second half of the year.

Yeah, we're not far from $5 a gallon

nationwide across this country. And as

we've been talking about, California's

been above $6 a gallon for some time.

And I've seen those prices in some

places along the East Coast as well.

Mark, if I'm not mistaken, you're based

in the heartland

of

If we see $5 a gallon in the Midwest, is

that a breaking point? I think so. I

mean, economists talk about the the $4

per gallon barrier that there's sort of

a psychological effect on consumers

when, you know, they see the the 400

at their corner gas station.

So, if we hit $5 a gallon,

I think that's just going to

you know, exacerbate, you know, the

concern that that people have,

particularly about gas prices, but

about, you know, prices in general.

That's the funny thing about inflation,

you know, the

the rate of inflation really spiked

after the coronavirus pandemic in 2022.

And the rate of inflation has come down

since then, but prices really haven't.

So, consumers are already sort of

stressed by high prices, and they and

they haven't seen prices return to what

they were before COVID. So, Julia, what

are

people that you're speaking to looking

for in terms of finding some relief as

we head into the summer season and the

potential for even higher prices, at

least in the short term? It doesn't look

like there is going to be relief soon. I

mean, as Mark mentioned, these higher

prices are likely going to stay for

quite a bit longer. It is going to be

difficult to rein those in. So,

Americans are trying to find creative

ways to

shift their budgets, but it really is

something that the spending is going to

have quite a significant pullback.

And Mark, as I mentioned, you cover the

intersection of government and politics

with the economy.

It seems like the economy has been topic

A for voters for months here. If we stay

at these kind of levels heading closer

to November, what's the potential

impact?

It could have a

very big impact. I mean, you you already

saw

uh elections uh in Virginia and uh New

Jersey uh last November sort of turn on

this issue of affordability.

Um and

uh that's that's only uh intensified. Um

the Democrats in particular are running

their their midterm campaigns, you know,

almost exclusively on the issue of

affordability.

Um you know, and and try to draw a

contrast uh between um you know, what

President Trump promised to do when he

took office to lower prices and what's

actually happened.

Um and and I think you'll see a lot of

these uh elections in November sort of

turning on this this question of who has

the best approach to uh bring down

prices. And I think it it could be um

you know, perhaps the the defining issue

in a lot of these congressional races in

determining who, you know, which party

gets control of the House and Senate.

All right, Julia, we've heard some

approaches uh from the White House on uh

getting prices down. Does it seem like

uh some of the policy proposals that

have been put out there could have an

impact? Oil analysts don't see it having

a significant impact. And the reason is,

first off, you have uh a lack of crude

supply, obviously, because of the

effective closure of the Strait of

Hormuz, but also

refineries in the US right now are

running very high levels, and they are

actually running with jet fuel because

that right now is creating higher

margins. So, these refineries don't have

as much of an incentive to be creating

as much gasoline. So, even though these

proposals might decrease gasoline costs

a bit, it is only until we have more

supply in the market and more refining

capacity that prices are significantly

going to lower. Or, if demand pulls back

enough that prices also decrease, but

that is a lot harder to happen. Yeah,

and a lot of time uh to come. Thank you

for this to both of you. That's uh Julia

Fanzeres and Mark Niquette covering the

economy for Bloomberg News. Thanks as

well to uh Bloomberg Intelligence senior

analyst Jen Bartashis and Lindsey Dutch

for the look ahead to the retail [music]

earnings this week. And Mike McKee and

Anna Wong of Bloomberg Economics. Thanks

to them as well. And thanks to you for

taking some time out [music] of your

Memorial Day to join us.

I'm Nathan Hager. Stay with us. Top

stories and global business headlines

are coming up right now.

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