Hello everybody and thanks for joining

us for this special edition of Bloomberg

Daybreak. I'm Nathan 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

Dekat. 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 in a 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'll 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 it's

showing up in as CPI. So this second

round, or I don't know, maybe like fifth

round already in last 5 years, is the AI

driven type of inflation

in memory chips and computer software

and uh

drive. uh 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. And actually, it's very

confusing, but that's that's the

inflation picture that Kevin Warsh

inherit, a very confusing and

complicated one. Well, I 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 Warsh 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 uh

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

Warsh because both uh the fact that

there's not much he can do about it. Uh

it mingles with the fact that uh his

boss isn't going to be happy about it.

Well, let's talk about that a little

bit, Anna, because obviously, uh

Chairman Warsh 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 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 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

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

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

how much is this inflation, especially

energy price inflation, going to curb

demand and therefore put pressure on the

labor market and 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 saying, and we're just

going to have to watch and see what

happens, which of course Kevin Warsh

said 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 McKee 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 had

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's 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 do

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

sentiment 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 $4.3 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

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, uh

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 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 then uh

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 acts 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 uh 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 Warsh role here is to

uh

aside from thinking about monetary

policy uh 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 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 Warsh era. Thanks to

both of you for this. Great having you

on with us. That's a Bloomberg Economics

Chief US Economist Dana Wong and

Bloomberg International Economics and

Policy Correspondent Michael McKee. Up

next, we're going to turn our focus from

the economy [music] to earnings. What to

expect from Costco and Best Buy. It's 20

minutes past the hour. I'm Nathan Hager

and this is Bloomberg.

>> [music]

[music]

>> 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 [music] earnings. We've

heard from about 90% 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

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 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's, the 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 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 margins should be pretty strong.

Now, as that inventory gets replaced

with 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, Costco has

uh 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. 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 plan to do a little bit more

staycations, You got to think that

there's going to be some differences

compared to uh summer and 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 uh 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. So

that kind of behavior obviously benefits

companies like Costco just as it

benefits companies like Walmart and

Target where there's a broad assortment

and people can actually do a complete

shopping shopping trip to meet all of

their needs. 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? Probably not anytime

soon. You 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.

So we just had a membership price

increase not that long ago. So they

probably won't pull on that lever right

away

and instead they have always

consistently talked about the fact that

they're okay with 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 and so what we may see is a little

bit more margin pressure 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 for their

customer base. And if things extend for

too long then we may see some

adjustments in in in what they have but

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 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 in 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. Lindsay 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

retailers like a Tractor Supply who

specifically called out that they saw

that tax 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 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 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

comps are getting harder and Best Buy

really need 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 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 results from

Whirlpool and they indicated that um for

big ticket appliances is down. I also

cover Sleep Group. You know, they're

they're formerly Tempur-Sealy 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

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?

Um

I think we're we are seeing some

consumer companies, you know, I cover

Elf 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, you know, holiday driving

season right now, the unofficial kickoff

of summer, but Uh, 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 that

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 later on this week. Thanks for

this, Lindsey. Great having you on with

us. That's uh, Bloomberg Intelligence

senior retail analyst Lindsey Dutch. And

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

may be one of the most expensive

Memorial Days on record. It's 37 minutes

past the hour. I'm Nathan Hager,

>> [music]

>> and this is Bloomberg.

Thanks again for joining us for this

special 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

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 kind of

surprising that we're seeing

strong predictions of travel because 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

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 at just, you

know, since the war started, before the

war started, gasoline is up a dollar 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've seen 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 view of the economy is souring even

if people 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 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 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 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 the 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

well, 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,

the potential for these inflation

expectations to

potentially become unanchored. I mean,

what is 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.

Now, 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,

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

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 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

a very big impact. I mean, you you

already saw

elections a in Virginia and New Jersey

last November sort of turn on this issue

of affordability.

That's only intensified.

The Democrats in particular are running

their their midterm campaigns in almost

exclusively on the issue of

affordability.

You know, and and try to draw a contrast

between

you know, what President Trump promised

to do when he took office to lower

prices and what's actually happened.

And and I think you'll see a lot of

these elections in November sort of

turning on this this question of who has

the best approach to bring down prices.

And I think it it could be

you know, perhaps the defining issue in

a lot of these congressional races in

determining who you know, which party

gets control of the House and Senate.

And Julia, we've heard some approaches

from the White House on

getting prices down. Does it seem like

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

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. And a

lot of time to come. Thank you for this

to both of you. That's Julia Fanzeres

and Mark Niquette covering the economy

for Bloomberg News. Thanks as well to

Bloomberg Intelligence senior analyst

Jen Bartashis and [music] Lindsay Dutch

for a look ahead to the retail earnings

this week and Mike McKee and Anna Wong

of Bloomberg Economics. [music] 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 with us. Top

stories [music] and global business

headlines are coming up right now.