Daybreak Holiday: Kevin Warsh, Costco, Inflation's Impact on Memorial Day

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 Fanzeries
and Mark Dequett, plus retail in focus for investors. This week,
we preview earnings from Costco and Best Buy with Bloomberg
Intelligence Senior analyst Jen Bartashis and Lindsay Dutch. But first
we have a special roundtable 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 I'll start
with you, how would you describe this economy that new
chairman warsh is stepping into.
Well, he 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 maybe peaking. We are estimating that May the next
report is where the headline CPI will peak roughly around
a little bit over four percent. However, the danger is
whether there will be second round effect onto the core.
But Kevin Morrish is also stepping in just as a
second supply shock is about to hit. But it's not
obvious right now that showing up in as EPI. So
this second round, or I don't know, maybe like fifth
round already in the last five years, is the AI
driven type of inflation in memory chips and computer software
and storage drive. We are seeing that peaking only in
twenty twenty seven, So I think generally your over year
inflation likely will peek in May and then step down gradually,
But then we'll see another little bump towards the end
of the year, and then in twenty twenty seven we'll
see it incrementally rising again after falling potential. It's very confusing,
but that's that's the inflation picture that Kevin warsh 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
Chairman Warrish is stepping into an environment where two percent
inflation might be a ways off.
It's 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 two percent than they had been thinking because
they're also seeing some bleed over into core rates from
services and goods that they didn't expect. So it's an
inflation problem that is kind of double for Kevin Walsh
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 Walsh was nominated after serious political pressure that
President Trump had been putting on former chair j Powell
for months, if not years. What is the challenge for
Chairman Walsh 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 has confirmation hearing he vigorously denied the idea that
he has promised Trump rate cuts. And also, I think
a sizeable 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 three weeks alone, we
have seen ten year yields rising by roughly thirty basis
point from four point three to now four point six,
and that is equivalent to almost forty to fifty basis
point of rate hikes. Basically, the market has essentially hiked
twice before Kevin worsh 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 ever 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 not cutting rates.
Now, the selloff 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 from one Trump headline to another,
the Fed at this point 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 Anna began the whole segment saying, and we're just
going to have to watch and see what happens, which,
of course Kevin Warre 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 think that the labor market
indeed had stabilized for several months now. We actually time
the bottom of the labor market to be around early fall,
late summer last year. However, because of this low hiring,
low fire regime is still in a very fragile state,
and with ten year yields going to four point six percent,
what I have found is that whenever ten year yields
surpass around the four point five percent mark is when
rates become very restrictive, and immediately you see the housing
sector responding, in which we are. Many of these housing
sector goods are already seeing deflation also, 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 a sentiment are as weakening. So I think one
takeaway from this earning season is that while the text
refonds 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 this 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 prices still are at four point three
dollars per gallon, then we are going to see that
weakening and consumption.
Mike, what do you how do you account for the
relative resilience that we've seen in this labor market despite
all the headwinds we've been talking about.
Well, it's kind of an interesting question because as and
as Staph 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. So 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 again just keeps everything sideline, keeps the Fed sideline
for now. Interesting point what Anna was just talking about
with rates staying high. There's two things I would note.
One is that oil industry analysts say the prices of
oil and gasoline are going to main high for months,
that 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 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 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 bit of a bigger box
than we might think. Is that what you're seeing in 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, for example,
if it forecast if I've wrong a believe that inflation
is not transitory right now, then and they go aheadhead
and hike as the market 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 jeopardized is one
way of thinking about why the administration is attacking the
central Bank, and so the central Bank is under pressure
to forecast correctly. And I think Kevin warsh rurle here
is to 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
leans hawkish. But what he can do is to go
in and reform the institution and increase the forecasting capability
of the FED and hance. Maybe that could distract the
debate and the headlines for a while away from 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 Bloomberg Economics Chief US economist stanel 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 and Best Buy. It's twenty
minutes past the hour. I'm Nathan Hagar, and this is Bloomberg.
Welcome back to this special edition of Bloomberg Daybreak. I'm
Nathan Hager. The US stock market is closed for the
Memorial Day holiday. We turn our focus now to earnings.
We've heard from about ninety percent of the companies in
the SMP five hundred 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
Bartashis 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. You know, Costco is just an engine that
doesn't quit. And when you look at the traffic into
their stores, it's consistently strong, you know. And part of
the current backdrop and the environment right now is really
playing into Costco's strengths. And what I mean by that is,
people are looking for value, and so when when you're
looking for value, you're looking to maximize the benefits of
that membership and the good prices that Costco offers. And
when I go by my costcos that there are several
near me, the lines for fuel are incredibly long right now,
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 and
that all tees 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
retailer self 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 at 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 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 quite a while, Costco's sales 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 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 consumers can weather a
short term kind of shock in terms of higher gas
prices at the pump. But the longer the higher gas
price is less, the more that consumer behavior does shift.
And the shift that we typically see is that people
will start to consolidate trips so that instead of seeking,
you know, a few items at a bunch of different retailers,
they start to favorite 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 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 is that something that could be
coming down the line for Costco customers.
Probably not anytime soon. I know Costco really they hold
a very very consistent schedule of when they when they
raise management membership prices, and it's roughly every five years.
So we we just had a membership price increase not
that long ago, so they probably won't pull on that
lever right away. And instead, you know, 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 costs to keep things competitive
and priced white for their for their customer base. And
if things extend for too long, then we may see
some adjustments in in in what the 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 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. And
so they have a lot of flexibility to help offset
pressures that arise in the business with regards to costs
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 dollar fifty hot dog soda
combo and the four ninety nine rotisserie chicken. Are are
those ever going to change?
I think that those are the last things Costco ever
wan to change, because it's that it's that sense of stability,
that sense of reliability. And you know, they sell millions
and millions of chickens and hot dogs every year, and
you know there is something to be said for the
volume of what you sell. But I think they happily
would take a loss on those areas if they had
to in order to keep that value perception intact.
Now, this is definitely the time for a hot dog.
Thank you. Jed Good having you on with us, that
is a Bloomberg Intelligence senior analyst, Jennifer Bartashis. 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. Of course, best
Buy has been guiding for just a one percent increase
in same store sales this quarter. I read your latest No,
you're saying even that may be too much to expect.
Why so the guidance for one percent 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 on 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 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 to that
drove a big gain in gaming. Computing has been strong.
Phones have been strong, but they've been carrying growth for
a couple of years now. So 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 in
some of those bigger ticket items on the consumer electronics side.
So I think the timing on the rebound 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 Somni Group,
you know, they're they're formally tempor seily big ticket mattresses.
They also revised their demand forecast for this year down.
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 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 two years or so, so there's
a possibility there, but we have to wait and see
because that big ticket rebound just hasn't emerged in other
categories yet.
You mentioned the tamp down of 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 elf Beauty at 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 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 unfold. 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, 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 just down the road we're going to be getting
into back to school shopping season in just a few months.
Do you expect to see anything from these results about well,
what Best Buy expects from you know, parents that might
have to buy their kidd 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 fourth 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 and invest Buy's playbook will start to
hit them, you know, in that mid to late summer season,
and I see 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 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, Lindsay,
great having you on with us. That's Bloomberg Intelligence Senior
retail analyst Lindsay Dutch And up next we'll tell you
why this may be one of the most expensive Memorial
Days on record. It's thirty seven minutes past the hour.
I'm Nathan Hager, 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 covered this economy, Julia Fanzeries
and Mark Niquette. Mark covers the intersection of government and
politics with the USA 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 ten percent 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 kind of surprising that we're seeing, you know,
the strong predictions of travel because of what's happening with
gas prices. You know, since the US war in Iran
started in February twenty eighth, we've just seen gas prices spike,
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,
four fifty six gallon for regular unleaded, and that's up
a dollar thirty eight from a year ago this time
last year, forty three percent, it was three dollars and
eighteen cents a gallon. And if you look at just
you know, since the war started, before the war started,
gasoline is up a dollar fifty eight 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
much much lower. So you know, it's kind of surprising
that we've seen people still being willing to pay that.
But we're seeing record low consumer confidence numbers coming out
in surveys. So I think in particular, gas prices are
driving people's 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 hit the
road 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 a 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 two 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 cards 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 mind.
I think 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 these higher gas prices
in 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 food prices. As Julia mentioned,
we're seeing all food increasing, prices for all food increasing,
but in particular prices for things like beef and lettuce
and tomatoes. I mean, the beef alone for your Memorial
Day cookouts is at record levels because the country's cattle
herd is at its smallest in seventy five years, but
demand hasn't softened, so prices have really gone up. The
average ground beef prices in April broke the seven dollars
per pound threshold for the first time, and steak is
now passed thirteen dollars a pound. Tomatoes are up forty
percent compared to this time last year. That's the biggest
jump since two thousand and four. 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 going up, and the fear is that these prices
are just going to keep going up, you know, as
it relates to food for example, you know, the economists
tell us that we haven't yet seen the full impact
of 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 fertilizers.
So farmers use less fertilizer on their crops or didn't
use fertilizer at all. So farm so yields are going
to be come down, are going to be downcome harvest time,
and food prices are only going to keep going up.
We're speaking with Bloomberg News economy reporters Mark Naquett and
Julia Fanzeris as we head into this 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
five dollars 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. Five dollars
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 witness in
a long time. Because even though higher gas prices were
at the same levels in twenty twenty two when Russia
invaded Ukraine, consumers are in a different place now. In
twenty twenty two, they had 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 five dollars a gallon, behavior will start
shifting significantly. And companies as well have been flagging that
these higher prices and higher gascots are going to impact
how consumers are spending. You had Target, you had Home Depot,
you had Lows, every one of those companies warning about
the shift in consumer behavior in the second half of
the year.
No, we're not far from five dollars a gallon nation
wide across this country. And as we've been talking about,
California has been above six dollars a gallon for some time,
and I've seen those prices in some places along the
East Coast as well. Mar Okay, if I'm not mistaken,
you're based in the heartland in Ohio. If we see
five dollars a gallon in the Midwest, is that a
breaking point?
I think so. I mean economists talk about the four
dollars per gallon barrier, that there's sort of a psychological
effect on consumers when you know they see that four
zero zero at their corner gas station. So if we
hit five dollars a gallon, I think that's just gonna
you know, exacerbate you know, concern that people have, particularly
about gas prices, but about you know, prices in general.
That's the funny thing about inflation. You know, the rate
of inflation really spiked after the coronavirus pandemic in twenty
twenty two, and the rate of inflation has come down
since then, but prices really havepen So consumers are already
sort of stressed by high prices 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 rain 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, We could have.
A very big impact. I mean, you already saw elections
in Virginia and New Jersey last November sort of turn
on this issue of affordability, and that's only intensified. The
Democrats in particular, are running their their mid term campaigns,
you know, almost exclusively on the issue of affordability, you know,
and tried 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 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 could be,
you know, perhaps the defining issue in a lot of
these congressional races and determining who, you know, which party
gets control of the House and Senate.
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 Horror moves, 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 Fanzeri's and
Mark Niquett covering the economy for Bloomberg News. Thanks as
well to Bloomberg Intelligence Senior analyst Jen Bartashis and Lindsay
Dutch for the look ahead to the retail 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 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