Did you know that passive fixed income

ETFs only capture about 50% of the US

public bond market? But with JP Morgan

Asset Management's active fixed income

ETFs, we can help you capture 100% of

the US public bond market and explore

twice as many opportunities. Visit

jporggan.com/getactive

to learn more. JPorggan Asset Management

is the brand name for the asset

management business of JP Morgan Chase

and Co. and its affiliates worldwide.

This communication is issued by JP

Morgan Distribution Services

Incorporated, member of FINRA. So,

there's a lot of noise about AI, but

time's too tight for more promises. So,

let's talk about results. At IBM, we

work with our employees to integrate

technology right into the systems they

need. Now, a global workforce of 300,000

can use AI to fill their HR questions,

[music] resolving 94% of common

questions. Not noise. Proof of how we

can help companies get smarter by

putting AI where it actually [music]

pays off. Deep in the work that moves

the business. Let's create smarter

business. IBM from coast to coast.

Unlock adventure at Red Lion Hotels by

Sinesta, where restful sleep, friendly

service, and trusted local knowledge are

part of every stay. Red Lion makes it

easy to feel welcomed, comfortable, and

connected wherever the road takes you.

Whether you're traveling for business or

pleasure, you can spend less and make

more of every trip. When you sign up for

Sinesta Travel Pass, you'll get their

best rates instantly. Go to sinesta.com

to book your stay and unlock the best

rates with Sinesta Travel Pass. Here

today, roam tomorrow. Join now at

sinesta.com. Terms and conditions apply.

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 Fanzer and Mark Nicette. Plus,

retail in focus for investors. This

week, we preview earnings from Costco

and Best Buy with Bloomberg Intelligence

senior analysts Jen Bartacius and

Lindseay Dutch. But first, we have a

special roundt 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 McKe 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 uh new chairman Worsh is stepping

into?

>> Well, he stepping into a huge supply

shock. The Iran war has led to

reaceleration and headline CPI. However,

he's also stepping in just as the

headline change in CPI may be peaking.

We are estimating that uh May the next

report is where the headline CPI will

peak roughly around uh a little bit over

4%. However, the danger is whether there

will be second round effect onto the

core. But Kevin Worsh is also stepping

in just as a second supply shock is

about to hit but it's not obvious right

now that it's showing up in CPI. So this

second round or I don't know maybe like

fifth round already in last five years

is the AIdriven type of inflation uh in

memory chips and computer software and

uh storage drive. Um we are seeing that

peaking only in 2027. Uh, 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. Um, and then in 2027, we'll

see it incrementally rising again after

falling initially. It's very confusing,

but that's that's the inflation picture

that Kevin Wars inherit. 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 uh

Chairman Wars is stepping into an

environment where 2% inflation might be

a ways off. [laughter]

It's definitely going to be a ways off.

Uh 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 uh some you know bleed over into

core rates uh from services and goods

that they didn't expect. So, it's uh

it's an inflation problem that is uh

kind of double for Kevin Worsh because

both the fact that there's not much he

can do about it. Uh 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 uh Chairman

Walsh was nominated after serious

political pressure that uh President

Trump had been putting on former Chair

Jay Powell for months, if not years.

What is the challenge for Chairman Worsh

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 vigorously 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 Walsh, 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

Wars even came on board. It may be just

maybe that in the next six months what

he would see is a slowing economy

because the tightening of financial

conditions from higher yields would be

biting and also as I said the inflation

on a year overyear basis would have

peaked in May and it would be coming

down and that could provide him the

cover of at least not hiking if if not

cutting rates.

>> Yeah. The uh 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 uh 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 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 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 War 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 Bloomberg international economics

and policy correspondent Michael McKe

and Anna Wong, chief US economist at

Bloomberg Economics. Let's talk about

the labor market, Anna, because it seems

like this low, higher, 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 10ear 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 you

would start seeing manufacturing slowing

uh right now manufacturing is still

doing very well because of the war but

if rates continue to be this elevated uh

the slowing is inevitable and on top of

that we are already now seeing some

signs that consumer uh sentiment are is

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 $43

per gallon, then we're 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 uh

the headwinds we've been talking about?

Well, it's kind of an interesting

question because u as Anna's staff has

pointed out, there may be some reasons,

statistical reasons and uh uh 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 uh

imports and things like that. Uh so u

right now 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 Anna was just talking about

with rates staying high. 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 regional

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 then uh

inflation slows but because that makes

borrowing more expensive in the short

run 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 a bit

of a bigger box than we might think. 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 forecasts uh if if it

wrongly believe that inflation is not

transitory right now then and they go

ahead ahead and hike as the market uh is

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 uh is under pressure to

forecast correctly. And I think Kevin

Worsh role here is to uh aside from

thinking about monetary policy and

there's 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 uh uh the

institution and increase the forecasting

capability of of the Fed. And hence um

maybe that could distract the debate and

the headlines uh for a while away from

you know him not cutting rates as Trump

wanted but uh focus on what he is doing

to reform the Fed.

>> What a complicated start to the Kevin

Wars 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 McKe. Up next,

we're going to turn our focus from the

[music] economy to earnings. What to

expect from Costco and Best Buy. It's 20

minutes past the hour. I'm Nathan Hager

[music] and this is Bloomberg.

>> [music]

>> Is passive investing costing you more

than you think? Active ETFs aim to beat

the benchmark, while passive ETFs just

settle for them. Embrace an active

strategy that helps you build stronger

portfolios. Invest with a global leader

in active fixed income ETFs with JP

Morgan Asset Management. Visit

jporggan.com/getactive

to learn more. JP Morgan Asset

Management is the brand name for the

asset management business of JP Morgan

Chase and Co. and its affiliates

worldwide. This communication is issued

by JP Morgan Distribution Services

Incorporated, member of FINRA. So,

there's a lot of noise about AI, but

time's too tight for more promises.

[music]

So, let's talk about results. At IBM, we

work with our employees to integrate

technology right into the systems they

need. Now, a global workforce of 300,000

can use AI to fill their HR questions,

resolving 94% of common questions, not

noise. Proof of how we can help

companies get smarter by putting AI

where it actually pays off. Deep in the

work that moves the business. Let's

create smarter business. IBM support for

the show comes from public. Lately, it

feels like there are two types of

investing platforms. Some are

traditional brokerages that haven't

changed much in decades, and others feel

less like investing and more like a

game. Public is positioned differently.

It's an investing platform for people

who are serious about building their

wealth. On Public, you can build a

portfolio of stocks, options, bonds,

crypto without all the bugs or the

confetti. Retirement accounts, yep, high

yield cash, yes, again, they even have

direct indexing. Public has modern

design, powerful tools, and customer

support that actually helps. Go to

pub.com/market

and earn an uncapped 1% bonus when you

transfer your portfolio. That's

pub.com/market.

Ad paid for by public holdings. Brokered

services by public investing member

FINRA SIPC. Advisory services by public

adviserss SEC registered adviser. Crypto

services by Zero Hash. All investing

involves risk of loss. See complete

disclosures at public.com/disclosures.

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 from a couple

of high-profile retailers. Let's start

with Costco. They report Thursday.

Jennifer Bartacis 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 and 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 you'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 that

that 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 tees 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, um, a lot of the fuel

that's being sold was bought before the

prices went really high. Um, so that

means, you know, generally speaking,

fuel margin should be pretty strong.

Now, as that inventory gets replaced at

higher costs, we're going to see some

volatility there. Um, and either way,

the higher fuel prices um, 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, uh, Costco has such a broad mix of

products that they offer. Are they

selling some of the, uh, 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. Um, but in the

last two or three quarters, we've seen a

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 stations,

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

be some differences compared to uh

summer and uh spring quarters of the

past, right? Considering where uh 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 um 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. Um 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 shop uh

shopping trip uh to meet all of their

needs.

>> Kind of curious about whether Costco

could be looking for ways to uh 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 uh 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. You know,

Costco really they hold a very very

consistent schedule of when they when

they raise me membership prices and it's

roughly every 5 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 vol 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 and

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 c

from 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 and 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 $150 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 you know, 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, Jed. Good having you

on with us. That is Bloomberg

Intelligence senior analyst Jennifer

Bartis. 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.

Lindseay 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 Attractor Supply who specifically

called out that they saw that tax re

refund money was really going towards

essentials and paying down debt rather

than splurging sort of on a big ticket

item.

>> Well, 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 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 getting harder and Best

Buy really needs a rebound in demand for

TVs and appliances to really get back on

the growth track.

>> Are you expecting to see that kind of

rebound uh in in some of those bigger

ticket items on the consumer electronic

side? So I think the the timing on the

rebound is is tricky and it might be a

bit delayed. You know we heard um

results from Whirlpool and they

indicated that um demand for big ticket

appliances is down. I also cover Somni

Group. You know their their formerly

TemperLe big ticket mattresses. They

also revised their demand forecast for

this year down. um 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. Um because

that that big ticket rebound just hasn't

emerged in other categories yet.

>> You mentioned the uh the tamp down uh

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 uh big consumer

companies uh 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? Um, 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. Um, so it's certainly

a pressure that retailers across the

board are dealing with. Um, 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. Um, but we'll have to see how it

goes. Yeah, I wanted to ask you about

that a little bit because, you know,

we're at the start of uh, you know,

holiday driving season right now, the

unofficial kickoff of summer, but uh,

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 uh, 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, um, you know, we're still a little

bit early, but the July 4th type of

sales could also be a good indicator.

Um, you know, that back to college

shopping, which which is really, you

know, I think more in in Best Buy's

playbook. Um, will start to hit them,

you know, in that mid to late summer

season. Um, and I say, 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 uh later on

this week. Thanks for this, Lindsay.

Great having you on with us. That's uh

Bloomberg Intelligence senior retail

analyst Lindseay Dutch. And up next,

we'll tell you [music] 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]

Support for the show comes from Public.

Public is an investing platform that

offers access to stocks, options, bonds,

and crypto. And they've also integrated

AI with tools that can assist investors

in building customized portfolios. One

of these tools is called generated

assets. It allows you to turn your ideas

into investable indexes. So let's say

you're interested in something specific

like biotech companies with high R&D

spend, small cap stocks with improving

operating margins, or the S&P 500 minus

high debt companies. Chances are there

isn't an ETF that fits your exact

criteria. But on public, you just type

in a prompt and their AI screens

thousands of stocks and builds a

one-of-a-kind index. You can even back

test it against the S&P 500. Then you

can invest in a few clicks. Go to

public.com/market

and earn an uncapped 1% bonus when you

transfer your portfolio. That's

public.com/market.

Add paid for by public holdings.

Brokered services by public investing.

Member FINRA SIPC advisory services by

public advisers SEC registered adviser.

crypto services by Zero Hash. Sample

prompts are for illustrative purposes

only, not investment advice. All

investing involves risk of loss. See

complete disclosures at

public.com/disclosures.

>> If you follow markets, you know the

value of long-term thinking. You plan,

you diversify, you prepare for

volatility. But in life, even the best

strategies can't prevent every bad day,

a fire, a loss, a disruption that

demands immediate attention. When that

happens, what matters isn't just what

you planned. It's who shows up. That's

where Cincinnati Insurance comes in. For

more than 75 years, they've helped

individuals and businesses navigate

life's toughest moments with care,

expertise, and personal attention.

Together with independent agents,

Cincinnati Insurance focuses on

relationships, not transactions. Their

approach is grounded in experience,

followrough, and trust built over time.

Bad days happen and when they do, you

deserve an insurance partner who

understands risk, respects what you've

built, and is ready to help you move

forward. The Cincinnati Insurance

Companies. Let them make your bad day

better. Find an independent agent at

cinfin.com.

You need to make a huge presentation in

an hour. Adobe Acrobat uses AI to take

all your documents and generate a

presentation with a single click. Build

slides quickly and streamline the

process. Need a last minute pitch deck?

Do that with Acrobat. Need to level up

your presentation design? Do that with

Acrobat. You have 30 plus documents that

need to be simplified into a proposal?

Do that. Do that. Do that with Acrobat.

Learn more at adobe.com/do

that with Acrobat.

[music]

>> Thanks again for joining us for this

special edition of Bloomberg Daybreak.

The US stock [music] 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 Fanzer and Mark Nikquette. 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 uh with their summer

plans?

>> Well, it's kind of surprising that we're

seeing, you know, the the strong

predictions of of travel because of of

what's happening with gas prices. You

know, since the US war uh in Iran

started in February 28th, we've just

seen gas prices spike and and energy

prices in particular are 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 um what is it?

456 a gallon for regular unled. And

that's up uh $138 from a year ago, this

time last year. 43%. It was $3.18

a gallon. And if you look at just, you

know, since the war started, before the

war started, gasoline is up $158 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, uh 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, uh 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 abaded 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 Gas Buddy, 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 uh from the

these higher gas prices and the effect

that it's having on the consumer?

>> Well, 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. Uh as Julia mentioned,

um we're seeing all food uh uh

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. Um so you're just seeing 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 uh 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 uh

fertilizer because the shipment of

fertilizer was affected by the war. Um

so it drove down supply and it drove up

the price of fertilizer. So farmers use

less fertilizer on their crops or didn't

use fertilizer at all. So farm so yields

are going to become down going to be

down come harvest time and food prices

are only going to keep going up.

>> We're speaking with uh Bloomberg News

economy reporters Mark Nquette and Julia

Fanzeries as we head into this uh

potentially one of the most expensive

Memorial Days uh 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 uh 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 has

been above $6 a gallon for some time,

and I've seen those prices in some

places along the East Coast as well. Uh

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

in the Heartland,

Ohio. If we see $5 a gallon in the

Midwest, is that a breaking point?

>> I think so. I mean, the economists talk

about the the $4 per gallon barrier that

there's sort of a psychological effect

on consumers when, you know, they see

that that 400 at their corner gas

station. Um, so if we hit $5 a gallon,

um, I think that's just going to, you

know, exacerbate, you know, the 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 the the rate of

inflation really spiked uh after the

corona virus pandemic in 2022

um 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 co

>> so Julia what are uh 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 uh 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 uh 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. Uh it seems like the

economy has been topic A for voters for

months here. If we stay at these kind of

levels, uh heading closer to November,

what's the potential impact?

>> It could have a a a very big impact. I

mean, you you already saw uh elections

in Virginia and uh New Jersey uh last

November sort of turn on this issue of

affordability. Um and uh that's only um

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 tried 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 u you know perhaps the the

defining issue in a lot of these

congressional races and determining who

you know which party gets control of the

House and Senate.

>> Uh 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 straight 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 Julia Fanzer and Mark Nquette

covering the economy for Bloomberg News.

Thanks as well to uh Bloomberg

Intelligence senior analysts Jen

Bartacius and Lindseay Dutch for the

look ahead to the retail earnings this

week. [music] And Mike McKe and Anna

Wong of Bloomberg Economics. Thanks to

them as well and thanks to you for

taking some time out of your Memorial

Day to join us. I'm Nathan Hager. Stay

[music] with us. Top stories and global

business headlines are coming up right

now.

>> Here's a paradox. We buy insurance for

peace of mind. Yet, the very policies we

trust can deliver the biggest financial

shocks. Across America, millions of

claims are denied every year. Not

because people did anything wrong, but

because policies quietly excluded the

things that happened. The psychology of

trust tells us we assume the contract is

fair. But in insurance, the information

gap is massive. The insurer knows every

detail of what's covered. The policy

holder rarely does. That's where My

Policy Advocate comes in. For just 27

cents a day, their platform reads your

policies and shows you in plain language

where you're vulnerable. They're not

selling insurance. They don't do that.

It's about transparency, giving ordinary

people the same understanding insurance

companies have had for decades. Because

when you know what's really in your

policy, you can plan, protect, and avoid

surprises. Before you trust your policy

to protect you, let my policy advocate

tell you what it really says. Visit

mypolicyadvocate.com

today. Peace of mind starts with knowing

the truth. my mypolicyadvocate.com.

>> As industries evolve faster [music] than

ever, companies need an environment that

accelerates strategic growth. And

Michigan delivers on that promise. From

emerging startups to global enterprises,

[music] Michigan offers what executives

value most. A resilient, innovative

ecosystem, diverse communities that

attract top [music] talent, and a

quality of life that supports work life

balance. With our unified team Michigan

approach, businesses [music] scale

faster and compete at the highest level.

Michigan, pure opportunity. Seize your

opportunity at michigan [music]

business.org.

>> These days, it seems like AI agents are

just about everywhere you turn, every

field in every function. But without

identity, you can't trust they'll serve

your business instead of jeopardizing

it. Fortunately, Octa helps you get

identity right by securing your AI

agents identities, giving you a single

layer of control, a single standard of

trust. So whether an AI agent supports a

single user or your entire enterprise,

with Octa, you'll turn risk into

opportunity. Secure every agent, secure

any agent. Octa secures AI.