Speaker 1: Thanks so much for joining us on the special edition
Speaker 1: of Bloomberg Daybreak. US markets are closed for the Memorial
Speaker 1: Day holiday. I'm Nathan Hager, and coming up this hour
Speaker 1: will the Fed cut rates this year? And if so,
Speaker 1: when and just how strong is the US economy? Will
Speaker 1: have a roundtable discussion with Michael McKee, our International Economics
Speaker 1: and Policy correspondent, and Bloomberg Economics Chief US economist Anna Wong. Plus,
Speaker 1: Memorial Day unofficially kicks off the summer. Are there any
Speaker 1: good travel deals to be had? We'll ask the founder
Speaker 1: of the Points Guy, Brian Kelly. But first let's take
Speaker 1: a look at the direction of travel for the stock market.
Speaker 1: Equities hit all time highs earlier this month. In fact,
Speaker 1: the Dow Jones Industrial Average crossed forty thousand for the
Speaker 1: first time. Plenty of analysts are racing to adjust price
Speaker 1: targets for the broader indexes. So what's in store for
Speaker 1: the rest of the year. Let's discuss with two expert
Speaker 1: voices on this market. Alisia Levine is this head of
Speaker 1: investment strategy at bny Melon, along with Brian Levitt, the
Speaker 1: global market strategist at Investco. Thanks to both of you
Speaker 1: for being with US. Of course, stocks have certainly defied
Speaker 1: expectations from the start of the year. So Alisha, I'll
Speaker 1: start with you, where do you see the momentum right now?
Speaker 2: So I think the momentum is really coming from the microside,
Speaker 2: which is earnings, and then of course the macro side,
Speaker 2: which is the data are holding in better than feared
Speaker 2: twelve months ago, six months ago, and the US economy
Speaker 2: is not overheated, and it's slowing down in a way
Speaker 2: that allows the FED not to have a hiking bias,
Speaker 2: and so therefore we just think it's a pretty good
Speaker 2: place to be. There is the possibility of volatility around
Speaker 2: the election, of course, and other hot data prints we
Speaker 2: might get on the inflation side, which really is the
Speaker 2: most important thing right now for where yields go. But
Speaker 2: other than that, we think the overall picture looks very good.
Speaker 2: So we'd say the negative side of sort of left tails,
Speaker 2: not that they're nothing, but they're not as big as
Speaker 2: they were. Let's say call it a year ago. And
Speaker 2: so we look at the world and we say, this
Speaker 2: kind of feels a little bit like the nineteen nineties,
Speaker 2: where good enough growth rates have normalized. We can grow
Speaker 2: from here and the economy is humming.
Speaker 1: Let's take that point, Brian. Looking like the nineteen nineties
Speaker 1: we saw a bubble back, then, is this a market
Speaker 1: that could see a bubble start to burst.
Speaker 3: Well, the late nineteen nineties we saw a bubble, so
Speaker 3: I think what was being referenced there is perhaps more
Speaker 3: the mid nineties we did see the green span fedback
Speaker 3: then raise interest rates in the mid nineties by a
Speaker 3: pretty significant amount. The market didn't love it, although I
Speaker 3: don't think an eight nine percent decline is anything terrible.
Speaker 3: But when it became clear that the Federal Reserve could
Speaker 3: back off, that the economy was still strong, the proverbial
Speaker 3: soft landing of that, it ended up being a very
Speaker 3: nice number of years for markets beyond it. So I
Speaker 3: don't think Alicia was mentioning it to suggest that this
Speaker 3: is a market that's in a bubble. More that there's
Speaker 3: a nice setup for markets to continue to climb higher.
Speaker 3: And if it is nineteen ninety four nineteen ninety five,
Speaker 3: you know investors would would then be quite happy over
Speaker 3: the next few years.
Speaker 1: Of course, Alicia, you set up a pretty strong bullish
Speaker 1: outlook there with the setup just now, how much further
Speaker 1: upside do you see for this market, what's going to
Speaker 1: be the catalyst for where things go for the second half.
Speaker 2: So I think the catalyst clearly has to come from
Speaker 2: the earning side. I think the excitement over AI and
Speaker 2: sort of fellow travelers, so the hyperscalers of Magnificent seven
Speaker 2: plus the chip beneficiaries, plus the power of the utility beneficiaries.
Speaker 2: That feels like it's well locked into place, and it's
Speaker 2: not an unknown, right, It's not an unknown. So I
Speaker 2: think you have to have earnings come in from the
Speaker 2: rest of the market. I think it's clear that another
Speaker 2: hot inflation print could cause volatility here. We would expect
Speaker 2: something like that. I think the models for predicting inflation
Speaker 2: are clearly not working and that's okay, But it does
Speaker 2: look like we're sort of in this disinflationary period with
Speaker 2: some hiccups here or there, so that could cause some
Speaker 2: volatility in the bond market. Overall. What we've been saying
Speaker 2: is the FED pivoted in December. We don't think the
Speaker 2: FED pivots from the pivot. So in terms of rate
Speaker 2: cuts this year, we've always said less and later. We're
Speaker 2: really at one cut for the year that would be
Speaker 2: sufficient to keep the market moving higher into the end
Speaker 2: of the year. And let's just point out, Nathan, you know,
Speaker 2: we're in a re election year and administrations tend to
Speaker 2: do everything they can to get reelected, and I think
Speaker 2: we see that with some fiscal support. So I think
Speaker 2: it's just very hard if you just put a timeline
Speaker 2: on this, even though we're as strategist Brian knows well,
Speaker 2: you don't put a number and a date in the
Speaker 2: same sentence. I just think, yeah, I just think that
Speaker 2: it's just hard to get that deep sell off from
Speaker 2: here into the end of the year in a re
Speaker 2: election year with the setup that we have of two
Speaker 2: to three percent growth and inflation that possibly sticky but
Speaker 2: still on the downward trend.
Speaker 1: I want to pick up to something that Alicia talked
Speaker 1: about at the beginning in terms of companies meeting their
Speaker 1: expectations for earnings. We've gotten through most of the earning season, Brian,
Speaker 1: and you've seen a lot of these companies put out
Speaker 1: pretty strong forecasts, some pretty positive outlooks in terms of
Speaker 1: where they see things going. Do you think companies are
Speaker 1: going to be able to meet or exceed their earnings
Speaker 1: expectations heading into the second half. What's it going to
Speaker 1: take for.
Speaker 4: Them to do it?
Speaker 3: It's so far they've been able to. And this was, again,
Speaker 3: to your point, another good earning season in a time
Speaker 3: when you know, many investors a year or two ago,
Speaker 3: we're thinking a recession was coming and we're contemplating what
Speaker 3: a decline in earnings could look like. So it's an
Speaker 3: economic backdrop, both in the US and globally that continues
Speaker 3: to be supportive for corporate earnings. The irony in all
Speaker 3: of it, Nathan, is that for all the focus on
Speaker 3: the FED, and for all the focus on will they
Speaker 3: or won't they and by how much and when the
Speaker 3: reality is that good nominal growth and no rate cuts
Speaker 3: is just buying for markets, and in fact perhaps maybe
Speaker 3: preferable to weaker growth and lower rates, which is what
Speaker 3: a lot of investors had been expected.
Speaker 1: Speaking with Brian Levitt, Invesco's global market strategist and Alicia Levine,
Speaker 1: the head of investment strategy at bny mellon interesting point
Speaker 1: and had just their Alisha about the setup still being
Speaker 1: positive for companies even if we don't see a FED
Speaker 1: rate cut this year. Do you share that view? Is
Speaker 1: there really that much of an expectation from companies that
Speaker 1: they FED needs to deliver in order for the momentum
Speaker 1: to continue for stocks.
Speaker 2: So for thirty percent of the SMP, which is about
Speaker 2: the top ten stocks, they don't need to borrow. So
Speaker 2: what the FED does in some ways is not relevant
Speaker 2: to their business models. Where you feel it whether the
Speaker 2: FED cuts or not, is as you do go down
Speaker 2: cap into small cap. You know a lot of the
Speaker 2: small cap index over half has floating rate debt that's
Speaker 2: due much sooner than the fixed rate debt that the
Speaker 2: larger cap companies took out in twenty twenty and twenty
Speaker 2: twenty one when rates were near zero. So that's why
Speaker 2: the rustle, for instance, is still fifteen percent below it's
Speaker 2: all time high in twenty twenty one, because you do
Speaker 2: have some business models that could be threatened here. Overall,
Speaker 2: the SMP is more resilient to what the FED decides
Speaker 2: to do with rate cuts if the FED stays here,
Speaker 2: which is very possible. A lot of the debt in
Speaker 2: the SMP is fixed rate and that maturing until twenty
Speaker 2: thirty or later. That's just a structural change. And so
Speaker 2: I think this kind of obsession with the FED is nice,
Speaker 2: but to Brian's point, you know, when the FED cuts
Speaker 2: many times, it means that the economy is weak, we
Speaker 2: have higher unemployment, and we're headed into a recession or
Speaker 2: we're already there. So I think most of us as
Speaker 2: strategists would take you know, five to five and a
Speaker 2: half percent nominal growth with you know, a FED funds
Speaker 2: rate meeting that more or less. And don't forget earnings
Speaker 2: are nominal and the SMP reflects nominal growth, and so
Speaker 2: you are in a sense already participating in all those
Speaker 2: parts of the market that you may be a little
Speaker 2: worried about with higher rates, as long as your companies
Speaker 2: don't have to go out and tap the debt markets.
Speaker 1: Bran, I want to pick up on another point you
Speaker 1: had earlier about looking beyond the US market. We've been
Speaker 1: talking about the resiliency of the US economy, but the
Speaker 1: potential as well for some other opportunities outside the US.
Speaker 1: Where are you looking? Where are you advising clients to
Speaker 1: put their attention when it comes to x US investments?
Speaker 3: Yeah, and investors clearly have preferred the United States for
Speaker 3: a variety of reasons. The catalysts that tend to unlock
Speaker 3: the value in other parts of the world will either
Speaker 3: come from economic surprises or will come from policy changes.
Speaker 3: So if you look at places like China, or in
Speaker 3: Europe or in the UK, where valuations are more reasonable,
Speaker 3: are their catalysts, and you're seeing policy that likely moves
Speaker 3: ahead of where we are in the US in terms
Speaker 3: of supporting the economy. You've seen trying to take some
Speaker 3: steps now to support their property sector. The European and
Speaker 3: UK central banks may be lowering rates ahead of time.
Speaker 3: But what you're also seeing is those parts of the
Speaker 3: world that were hit harder over the last year or
Speaker 3: so are now starting surprise to the upside a bit,
Speaker 3: while the US surprise in disease in terms of whether
Speaker 3: we're outpacing economic expectations are coming down a little bit.
Speaker 3: So it's a sea change. It's not necessarily one where
Speaker 3: we say go out and you know, swing wildly to
Speaker 3: move from the US to international. But if you believe
Speaker 3: we're in the recovery phase of the cycle in those
Speaker 3: parts of the world, then you would want to increase exposure,
Speaker 3: will help the evaluation of the portfolio, diversify some of
Speaker 3: your dollar exposure. And if we're right that those economies
Speaker 3: are recover intends to be a good backdrop for their markets.
Speaker 1: Now, Alisha, I'm curious where you're looking for surprises. I mean,
Speaker 1: we've got wars still happening around the world, We've got
Speaker 1: a US presidential election coming up in the fall, We've
Speaker 1: got a UK election coming up in the summer. What's
Speaker 1: got your attention?
Speaker 2: So is this the question about what makes me worry
Speaker 2: at night?
Speaker 1: What makes you worry at night?
Speaker 2: Alicia n So, Look, I think the geopolitical risks are
Speaker 2: very real and heightened in a way that you know,
Speaker 2: typically markets don't really factor in geopolitical risk for more
Speaker 2: than a few weeks at a time, I think, you know,
Speaker 2: and typically it's through the commodity cycle. So you know, Ukraine,
Speaker 2: Middle East clearly oil and in the Ukraine case a
Speaker 2: fertilizer and for food that could be still at risk there,
Speaker 2: but the market knows that. And in fact, you know,
Speaker 2: WTI oil prices have actually come down from the peak
Speaker 2: when there was probably a ten dollars premium in oil
Speaker 2: prices for a hot war in the Middle East. I think,
Speaker 2: you know, maybe there's some volatility around the election, and
Speaker 2: I would say this, I think the best thing that
Speaker 2: can happen for all of us, is that we wake
Speaker 2: up or we go to sleep with a fifty three
Speaker 2: forty seven win for whatever party it is, and it's
Speaker 2: a clear winner, and I think that would be the
Speaker 2: best case for the market regardless. I think if we
Speaker 2: have one of those where it's really too close to
Speaker 2: call and may take weeks to find out, that's not great,
Speaker 2: and that won't be great for the market either. And
Speaker 2: so that's just I think probably the risk out there.
Speaker 2: The other thing is the deficit. Of course, neither party
Speaker 2: is really serious about addressing this, and in fact, both
Speaker 2: platforms have enormous fiscal spend attached to their political promises.
Speaker 2: So I'd say that's something we have to keep an
Speaker 2: eye on.
Speaker 1: Our Thanks to Alisha Levine, head of investment strategy at
Speaker 1: bn Y Melon and Invesco Global market strategist Brian Levitt.
Speaker 1: And coming up next, we'll take an even closer look
Speaker 1: at the economy and whether the Fed will cut interest
Speaker 1: rates before this year is out. I'm Nathan Hager, and
Speaker 1: this is Bloomberg. Welcome back to this special edition of
Speaker 1: Bloomberg Daybreak. US markets are closed for Memorial Day. I'm
Speaker 1: Nathan Hager. Thanks for joining us. Now we want to
Speaker 1: turn from the stock market to the economy. Twenty twenty
Speaker 1: four began with high expectations for interest rate cuts. So
Speaker 1: far we haven't had a one. So what will it
Speaker 1: take for the Fed to finally pull the trigger and
Speaker 1: will they even do it? To dive into those questions,
Speaker 1: we have convened a special economic roundtable. Anna Wong is
Speaker 1: with US, chief US economist at Bloomberg Economics, along with
Speaker 1: Michael McKee, International Economics and Policy correspondent for Bloomberg Radio
Speaker 1: and Television. Thanks to both of you for being with us.
Speaker 1: And I'll start with you, Mike, because you talk with
Speaker 1: these FOMC voters like all the time. So what are
Speaker 1: they telling you in terms of policy?
Speaker 4: Basically, their story hasn't changed. They're waiting for inflation to
Speaker 4: show signs that it is going to continue on down
Speaker 4: to two percent. Now, one important thing to remember is
Speaker 4: they're going to start cutting interest rates before they get
Speaker 4: to two percent. They've made that clear. But right now
Speaker 4: they're not seeing any progress at all since basically inflation
Speaker 4: has stalled out. So it's going to take a little while,
Speaker 4: several more months, and then we'll see whether they get
Speaker 4: anything this year or not, a lot of them moving
Speaker 4: out sort of on the curve, and more and more
Speaker 4: of them talking about end of the year as a
Speaker 4: possible first timing for a rate cut.
Speaker 1: Several more months. And of course you worked as an
Speaker 1: economist in the Federal Reserve, and it's so funny because
Speaker 1: at the beginning of the year there was all this
Speaker 1: talk about maybe six or seven interrast rate cuts. Now
Speaker 1: there's no way we can get that the way the
Speaker 1: calendar is going. So what do policymakers need to see
Speaker 1: to get that assurance that they can start the interest
Speaker 1: rate cutting cycle.
Speaker 5: Yeah, So, you know, in the beginning of the year,
Speaker 5: when the market was pricing in one hundred and seventy
Speaker 5: base point of right cuts, that was a little bit
Speaker 5: overdoing it. But even then time, given the inflation trajectory,
Speaker 5: a fair assessment, given the you know, inertial tailor rule,
Speaker 5: which the Fed has followed quite closely over the past
Speaker 5: two years, is that one hundred to one hundred and
Speaker 5: twenty five bases cut was reasonable. And now we are
Speaker 5: down to the model, the tailor rule saying that a
Speaker 5: fair assessment would be forty basis point of cuts, and
Speaker 5: that would be the result from a reasonable range of
Speaker 5: inflation numbers. And the reason why that rule has come
Speaker 5: down from one hundred and twenty five to now forty
Speaker 5: is because mostly because of the inflation data as you suggested.
Speaker 5: So I think the expectation that the Fed will cut
Speaker 5: once or twice this year is still fair. And whether
Speaker 5: it would be more like one cut or two cut,
Speaker 5: it depends on whether inflation is going to be closer
Speaker 5: to ending the year closer to two point six percent
Speaker 5: or is it three percent. So in our forecast, we
Speaker 5: do expect inflation to be drifting back up from a
Speaker 5: low of two point seven percent mid year to closer
Speaker 5: to three percent by the end of the year. But
Speaker 5: we still do think the Fed would cut because unemployment
Speaker 5: is we think it's going to rise about four percent
Speaker 5: by the end of this year.
Speaker 1: Mike, from what you're hearing from Fed officials, are they
Speaker 1: feeling that pressure to deliver the first cut before the
Speaker 1: year is out? I mean, it does get harder to
Speaker 1: make that move once we get closer to an election,
Speaker 1: doesn't it.
Speaker 4: They would argued no, and past history supports that idea
Speaker 4: that the election doesn't make any difference to them. They'll
Speaker 4: do what they think they should do when the time comes,
Speaker 4: But at this point they don't seem to be feeling
Speaker 4: any pressure because the economy is not demanding it. They
Speaker 4: look around and they see where unemployment is well below
Speaker 4: four percent, and they see the economy growing basically at potential,
Speaker 4: and they don't think they need to cut rates at
Speaker 4: the moment. The biggest concern they have going forward is
Speaker 4: that if inflation does start to fall again, then you
Speaker 4: get a rise in real rates and that would tighten
Speaker 4: conditions even more. So maybe they don't want that. The
Speaker 4: other side of that coin is do they need to
Speaker 4: cut rates because the economy slows so much and that's
Speaker 4: not in anybody's forecast there at the moment.
Speaker 1: Well, so what is the forecast and when it comes
Speaker 1: to the path for disinflation. Obviously we did see that
Speaker 1: little bit of a bump the first quarter of this year, things,
Speaker 1: as you said, have been stalling out. Where do you
Speaker 1: see the disinflationary path going, if at all, into the
Speaker 1: second half.
Speaker 5: Typically in the beginning of the year you do have
Speaker 5: these unfavorable seasonal factors, and for this year, the unfavorable
Speaker 5: seasonal factors for inflation lasted beyond February, which is a
Speaker 5: little bit unusual. But then if the past is a guide,
Speaker 5: from here on out to the end of summer should
Speaker 5: be a favorable period for disinflation. So our forecast, and
Speaker 5: I think the Fed's forecast, is for the year over
Speaker 5: year core PC deflator to continue to edge down from
Speaker 5: now to mid year. Possibly by August we will see
Speaker 5: a core pc E twelve months change of two point
Speaker 5: seven or two point six percent. But our forecast for
Speaker 5: the second half is more pessimistic because then all these
Speaker 5: favorable factors we see from here to end of summer
Speaker 5: will reverse and then it gets harder. And that's when
Speaker 5: we also think that the base effects of inflation would
Speaker 5: turn against all these measures, because that's because last year
Speaker 5: we called last year, the second half of last year
Speaker 5: was very favorable for inflation. So you have this low
Speaker 5: base effect which tends to push up the year over
Speaker 5: year in the second half, and this is why we
Speaker 5: think that at the end of the year core PCE
Speaker 5: deflator would be closer to three than mid twos.
Speaker 1: Speaking with Anna Wong, the chief US economist at Bloomberg Economics,
Speaker 1: and our Bloomberg International Economics and Policy correspondent, Michael McKee. Mike,
Speaker 1: you've been talking, of course to FED officials. We've heard
Speaker 1: from Raphael Bostik of the Atlanta FED talking about how
Speaker 1: there are active discussions about where the neutral rate is,
Speaker 1: the rate at which policy neither slows nor grows the economy.
Speaker 1: What's the thinking about where that stands right now?
Speaker 4: Well, it's becoming more important because now we're getting into
Speaker 4: the possibility of rate cuts, and so the question for
Speaker 4: everybody is once they do start, how far do they cut?
Speaker 4: And I think most FED officials would tell you they
Speaker 4: don't really know. They don't think they will be going
Speaker 4: back anywhere near the zero rates that we had for
Speaker 4: a while. But how fast can the economy grow right now?
Speaker 4: That's not clear. And unfortunately, the neutral rate is something
Speaker 4: that's not observable as an individual number. It's something better
Speaker 4: seen in hindsight. But they're looking at the inflation rate
Speaker 4: and they're looking at the growth rate, and they're thinking,
Speaker 4: maybe we have seen the economy move up its neutral rate,
Speaker 4: but would that last. As Anna said, forecasts are we're
Speaker 4: going to see a cooling as we go along. So
Speaker 4: they don't really have a good number yet. They're thinking
Speaker 4: in terms of somewhere around four percent, maybe a little higher,
Speaker 4: a little lower, but it's going to depend on the
Speaker 4: conditions in the economy at the time, and that's going
Speaker 4: to be several rate cuts down the road, So we
Speaker 4: probably won't get a neutral rate view until sometime next year.
Speaker 1: And when it comes to conditions in the economy, And
Speaker 1: is there some thinking within the FED or among economists
Speaker 1: like yourself that there may need to be some further
Speaker 1: damage to the economy to get inflation to the fed's
Speaker 1: target in terms of the labor market, in terms of
Speaker 1: goods and services.
Speaker 5: I think from reading the community public communications of the FED,
Speaker 5: it's pretty clear to me that the FED has moved
Speaker 5: away from that view that you do need damages to
Speaker 5: the labor market to bring down inflation. In fact, the
Speaker 5: confidence within the committee has been building that you don't
Speaker 5: need that They are banking on productivity growth and also
Speaker 5: immigration to provide support to the economy without introducing inflationary forces.
Speaker 1: And there's a lot of discussion as well about whether
Speaker 1: the two percent inflation target even makes sense. I mean,
Speaker 1: we hear from the likes of muhammedel Air saying that
Speaker 1: that level is arbitrary. Mike, why is it so important
Speaker 1: for this FED to get to that two percent target?
Speaker 4: It's basically a credibility issue for them. One of the
Speaker 4: things that was pointed out at the Atlanta FED conference
Speaker 4: last week was that during the great inflation of the
Speaker 4: nineteen seventies and eighties, inflation expectations soared along with the
Speaker 4: inflation rate, and that didn't happen this time, and so
Speaker 4: they fed credibility. People believe the FED will do what
Speaker 4: it takes to bring inflation doubt, and they have the
Speaker 4: two percent target, so they need to stick to that.
Speaker 4: They need to make sure people understand that they're going
Speaker 4: to fight inflation, they're going to bring it down. We
Speaker 4: may never actually get there because they will start cutting
Speaker 4: before they get to two percent, and if inflation gets
Speaker 4: sticky at two point three percent, I don't think they're
Speaker 4: going to risk damaging the economy by trying to push
Speaker 4: even harder. But they want people to know they're going
Speaker 4: to follow up. Now. They start later this year, a
Speaker 4: review of their policy framework probably taken another year, and
Speaker 4: so sometime in twenty twenty five or early twenty twenty six,
Speaker 4: they may change their view. Right now, I didn't find
Speaker 4: any support I haven't found any support for changing it
Speaker 4: to a higher number, at least firmly. But there are
Speaker 4: people who are thinking about it that this world we're
Speaker 4: going into a post pandemic is going to have a
Speaker 4: little bit faster inflation on a regular basis, but they're
Speaker 4: not ready to commit to anything yet.
Speaker 1: Well, what do you think, Anna, is a two percent
Speaker 1: inflation target still achievable? I mean, it's taken quite a
Speaker 1: while just to get to where we are right now.
Speaker 5: Yeah, I think you know. Our view is that inflation
Speaker 5: is sliding down the nonlinear and steep part of the
Speaker 5: Phillips curve or the beverage curve, and we're about getting
Speaker 5: to that part where it starts to get harder to
Speaker 5: generate a percentage point of disinflation, which is what we
Speaker 5: need right now. We need another percentage point of disinflation,
Speaker 5: and we won't know exactly whether that's right, whether we're
Speaker 5: indeed stuck at three percent inflation until twenty twenty five
Speaker 5: or twenty twenty six, And as Mike said, and that's
Speaker 5: when only the sentiment today is that we're the FED
Speaker 5: is definitely sticking with the two percent mandate, price stability mandate,
Speaker 5: but in twenty twenty five and twenty twenty six, it
Speaker 5: will be very clear whether inflation is indeed stuck. So
Speaker 5: from my view, I've looked at arranged models and also
Speaker 5: looked at bottom up way of looking at inflation forecasts.
Speaker 5: I do think that there's a hard mile to inflation.
Speaker 5: It might not be a whole percentage point, but it's
Speaker 5: very likely that inflation core PCE deflator could be stuck
Speaker 5: at two point seven percent or above, and the Fed
Speaker 5: might decide to live with it, even though verbally they
Speaker 5: would say they are still trying to achieve the two percent,
Speaker 5: because it is very hard to get from two point
Speaker 5: seven to two percent.
Speaker 1: Now, we've certainly seen how hard it's been just to
Speaker 1: get to where we are right now. Thank you to
Speaker 1: the both of you for joining us. Michael McKee, international
Speaker 1: economics and Policy correspondent for Bloomberg Radio and Television, and
Speaker 1: Anna Wong, Chief US economist at Bloomberg Economics. Up next,
Speaker 1: If you're still looking for travel deals this summer, we'll
Speaker 1: check in with the Point Sky Brian Kelly on this
Speaker 1: kickoff weekend for summer getaways. It's thirty seven minutes past
Speaker 1: the hour. I'm Nathan Hager, and this is Bloomberg. Thanks
Speaker 1: again for being with us on this special edition of
Speaker 1: Bloomberg Daybreak. I'm Nathan Hager. US markets are closed for
Speaker 1: the Memorial Day holiday, but the roads, rails, and airports
Speaker 1: most certainly are not. Of course, Memorial Day marks the
Speaker 1: official kickoff of summer travel season, and to hear the
Speaker 1: folks at Triple A tel It, this could be one
Speaker 1: of the busiest travel weekends since they started keeping track
Speaker 1: more than two decades ago. That pent up demand post
Speaker 1: COVID could be ready to burst big time, even with
Speaker 1: inflation and interest rates sticking with us through these warm months.
Speaker 1: So who better to help us stretch that travel dollar
Speaker 1: as we make our way through summer than the Points
Speaker 1: guy himself, Brian Kelly is with us. Brian, thanks for
Speaker 1: taking time out for what I am sure is a
Speaker 1: very busy time for you.
Speaker 6: Of course, thanks for having me.
Speaker 1: So you were calling last summer the summer of domestic travel.
Speaker 1: This year, you say it's going to be the summer
Speaker 1: for international travel, even with prices where they are.
Speaker 6: Yeah, you know when you actually look at the prices,
Speaker 6: And I've been booking a lot of European trips this summer,
Speaker 6: especially in business and first class. There's actually a lot
Speaker 6: of great deals out there. There's an interesting dynamic going
Speaker 6: on in the marketplace. You know, the airlines have actually
Speaker 6: upgauged a lot of routes, adding more capacity to Europe
Speaker 6: than we've seen before. There's about three hundred thousand more
Speaker 6: seats that the US carriers will have to all of
Speaker 6: Europe this summer. So it's had an interesting impact on prices.
Speaker 6: We have not seen the spike in prices that would
Speaker 6: go along with the increase in demand. We're also seeing
Speaker 6: now more increased competition from lower cost carriers, and you know,
Speaker 6: broadly speaking, you know, two summers ago, especially when the
Speaker 6: world really started to open up, we were seeing you know,
Speaker 6: not as much demand, but such less capacity that prices
Speaker 6: were you know, I was seeing routinely five, six or
Speaker 6: seven thousand dollars round trip business cost tickets from the
Speaker 6: US gateways to Europe. This summer, I'm looking at three
Speaker 6: thousand dollars four thousand dollars fares from the West Coast
Speaker 6: for majority of the summer, and some airlines like British Airways,
Speaker 6: are even having four thousand dollars for first class round
Speaker 6: trip to Europe, which I'm kind of shocked by.
Speaker 1: Yeah, not terrible. So the airlines are providing the capacity.
Speaker 1: What has you thinking that they're going to be able
Speaker 1: to fill those seats.
Speaker 6: It's an interesting question, and I think why we are
Speaker 6: seeing prices not through the roof. You know, there are
Speaker 6: certainly some routes that you'll see increase pricing, specifically Paris Paris.
Speaker 6: The thing about Paris you have to worry about the summer.
Speaker 6: I was actually just before chatting with you, looking at
Speaker 6: a June trip. You know, the Olympics start at the
Speaker 6: end of July, so you know, really end of July
Speaker 6: and August Paris. You know, gird, you're loin prepared to
Speaker 6: pay through the notes, but she was looking, you know, flights.
Speaker 6: Flights in June were much higher than normal. But what
Speaker 6: you really need to look out for is hotels, man
Speaker 6: especially luxury hotels. This is where I'm seeing real inflation.
Speaker 3: Stay.
Speaker 6: We're seeing those twenty twenty three numbers, twenty twenty two
Speaker 6: when hotel rates. You know that the average luxury hotel used,
Speaker 6: you know, seven hundred bucks used to be able to
Speaker 6: get you a nice room at a four seasons. You
Speaker 6: know that's now seventeen hundred and in Paris. If you
Speaker 6: like luxury hotels in Paris, the new norm is twenty
Speaker 6: five hundred to three thousand euros a night, wow for
Speaker 6: those top twenty hotels. And it is and it seems
Speaker 6: to be persistent all summer long. So this is the
Speaker 6: summer where it behooves you to look outside the box.
Speaker 6: There's still plenty of affordable, beautiful destinations in Europe that
Speaker 6: are not a Malfy coast south of France, you know,
Speaker 6: Greek islands.
Speaker 1: Yeah, I mean some of those places obviously are going
Speaker 1: to be high demand, not just because of the Olympics
Speaker 1: in Paris particularly, but we've had the Taylor swift Eras
Speaker 1: tour going there as well. It makes you think that
Speaker 1: maybe August early September might be the best time frame
Speaker 1: to go to the City of Lights. But what other
Speaker 1: desks to nations are you looking at where we might
Speaker 1: be able to stretch that kind of strong dollar that
Speaker 1: we still have given where rates are right now.
Speaker 6: Absolutely, the US dollar is still a beast no matter
Speaker 6: how you look at it. You know, I was just
Speaker 6: in South Africa. That's a perennial favorite for me. You know,
Speaker 6: of course, you notice, you know, with Argentinas, you know,
Speaker 6: even though they're trying to turn their currency around, huge
Speaker 6: value to be had. Now, just note, obviously our summer
Speaker 6: is their winter. But you know, winter in Buenos Aires
Speaker 6: is not like winter in New York City or Chicago.
Speaker 6: So you can still have incredible travel experiences, less crowds
Speaker 6: than you know, going to Europe in peak summer months.
Speaker 6: And I'll just tell my fellow Americans out there, haven't
Speaker 6: been to Europe in a while, you know, especially with
Speaker 6: sweltering heat records constantly. You know, I foresee that again
Speaker 6: this summer. I was in Florence two summers ago when
Speaker 6: it was in the nineties. And when I tell you these,
Speaker 6: a lot of these European cities are not equipped for
Speaker 6: the level of heat they're about to see. And you
Speaker 6: see restaurants, you know, the air conditioning units petering out
Speaker 6: and it's just hot on the street. So be careful booking,
Speaker 6: you know, in Europe peak dates in July and August,
Speaker 6: because you're not going to get the greatest experience. Also
Speaker 6: in August in Europe, a lot of the locals leave,
Speaker 6: so you're going to be paying a premium to be
Speaker 6: sweating with fellow Americans, which sort of defeats the purpose
Speaker 6: of going to get the European experience.
Speaker 5: Yeah.
Speaker 1: Yeah, it's pretty difficult, a pretty difficult time all around
Speaker 1: in Europe anyway. I mean, given the way the geopolitics
Speaker 1: are in some ways and a lot of what you mentioned,
Speaker 1: I mean we've seen like wildfires last year. I mean,
Speaker 1: are you thinking, like, other than some of those more
Speaker 1: obvious events that are happening in Europe right now, that
Speaker 1: maybe some of the more off the beaten path travel
Speaker 1: destinations might just be a better bet all in all,
Speaker 1: given the what the dynamics are in Europe right now.
Speaker 6: Absolutely, And this is I think a great time to
Speaker 6: talk about travel insurance too. I've never really been a
Speaker 6: big travel insurance person. You know, most of the time
Speaker 6: with our credit cards, you get basic coverage if you know,
Speaker 6: something crazy happens, your flight gets canceled even now due
Speaker 6: to weather delays. You know, you can get good protections
Speaker 6: if you've got a premium travel credit card. But what
Speaker 6: people don't realize is, you know, for example, Mali, you
Speaker 6: know when Mawy had those wildfires that appeared out of nowhere,
Speaker 6: You're not going to get refunded from your hotel. Most
Speaker 6: of the hotel chains did not refund their customers, and
Speaker 6: I actually think it's a wake up call for consumers.
Speaker 6: When you're buying travel, it does not come with protections
Speaker 6: from these events, and you should not expect, especially if
Speaker 6: you're staying at a boutique hotel, you should not expect
Speaker 6: that that small hotel owner who's going to go through
Speaker 6: a horrible financial time to also underwrite the risk for
Speaker 6: you and your room. You know, I think in America
Speaker 6: we've got this sense of well, if I don't get
Speaker 6: what I paid for, I deserve a refund. But in
Speaker 6: these cases, especially strikes, strikes are happening all over Europe.
Speaker 6: When a strike happens, you know, even your credit card
Speaker 6: may not come through. So more than ever, paying five
Speaker 6: to ten percent of the total cost to your trip
Speaker 6: and travel insurance to give you the peace of mind.
Speaker 6: And now to your point, going to some of the
Speaker 6: more far flung destinations where you're going to get a
Speaker 6: better experience. I love Africa. Africa in the summer, you know,
Speaker 6: certain African safaris, the great migration happens in June. I've
Speaker 6: done that in Tanzania and Kenya. Absolutely spectacular these are
Speaker 6: the trips where you might want to invest in that
Speaker 6: comprehensive travel insurance. And you know, especially if you get sick.
Speaker 6: I just you know, did a piece on you know,
Speaker 6: I got food poisoning recently. Luckily it wasn't so bad.
Speaker 6: But I've had thousands of comments from my followers who
Speaker 6: have said travel insurance is a godsend when you're abroad
Speaker 6: because most American insurance, you know, health insurance does not
Speaker 6: cover you abroad, and the credit card coverage is shaky.
Speaker 6: So my final point on travel insurance I'm not paid
Speaker 6: by any one travel insurance company is never get it
Speaker 6: through your airline or hotel. Always go. There are sites
Speaker 6: like ensure my Trip where you can compare and contrast
Speaker 6: and price match policies. But never just buy a policy
Speaker 6: one off from a travel provider because it's easy in
Speaker 6: the point of sale. Always look, but you'd be surprised.
Speaker 6: Even if you get laid off from your job, travel
Speaker 6: insurance will let you cancel your trip and get all
Speaker 6: your money back.
Speaker 1: Yeah, to your point about the Africa experience, You've been
Speaker 1: doing a lot of reporting at Bloomberg here as well
Speaker 1: about how a lot of countries in Africa are starting
Speaker 1: to invest a lot more in sort of that luxury
Speaker 1: safari experience as well. But what you're talking about higher
Speaker 1: hotel prices advising people to get insurance, The costs start
Speaker 1: to add up, don't they. So I mean, how do
Speaker 1: you stretch that travel dollar if you're going to be
Speaker 1: running into you know, pretty elevated once you get to
Speaker 1: your destination.
Speaker 6: Absolutely so, say you're still hell bent on going to
Speaker 6: the Amalfi coast, right, I guess a lot of people
Speaker 6: are most of those hotels now because there's such high demand.
Speaker 6: Not only are you paying two thousand euros a night
Speaker 6: or more, they're non refundable months in advance. And this
Speaker 6: is a risky game. So well, first off, and that's
Speaker 6: where I would say travel insurance that paying the extra
Speaker 6: five percent to give you the peace of mind. Say
Speaker 6: you your spouse kid gets sick, it's covered, You'll get
Speaker 6: that money back. That's when it really starts to make sense.
Speaker 6: But back to your point of how to save, there
Speaker 6: are still incredible, incredible points deals. Air France has been
Speaker 6: the star of the show this year. If you ask
Speaker 6: any frequent flyer in the know, Air France has released
Speaker 6: more fifty thousand point business class awards from major US
Speaker 6: cities across the country to Europe, you can find fifty
Speaker 6: thousand dollars one way business class flights. And when you
Speaker 6: if you compare that to the American airlines, you know, Delta,
Speaker 6: their partner for the same flights, will often charge five
Speaker 6: hundred thousand miles for four hundred thousand. So there's been
Speaker 6: this huge inflation in the US airline currencies. The international
Speaker 6: airlines are where the tremendous value is. I love air
Speaker 6: you know the Flying Blue program. It's a transfer partner
Speaker 6: of all the major credit card companies. So my one
Speaker 6: tip there too is don't just put all your miles
Speaker 6: with one airline. I know, even if you fly the
Speaker 6: one airline, you want to be loyal. What happens is
Speaker 6: when you just get that co branded card for that car,
Speaker 6: you're banking up in a currency where it could you know,
Speaker 6: the inflation could go through the roof. And actually, the
Speaker 6: US government just had a hearing on airlines being naughty,
Speaker 6: and you know they're issuing these frequent flyer miles and
Speaker 6: then just continuously, year over years, they'll double the amount
Speaker 6: of miles you need to go to Europe the international
Speaker 6: programs are where it's at, and they often have transfer
Speaker 6: bonuses from AMX and Chase to Flying Blue to Aeroplan
Speaker 6: to Virgin Atlantic. So become an expert on these foreign
Speaker 6: freaking flyer programs, and there's a whole new crop of
Speaker 6: tools that will you know, like when you buy a flight,
Speaker 6: Google flights, Google dot com, slash flights is where you
Speaker 6: know you should go to start your flight search. When
Speaker 6: you're going to pay for a flight, we'll say you've
Speaker 6: got a lot of different AMX and Chase points in delta.
Speaker 6: It's really confusing because historically you have to go to
Speaker 6: each and every one of those websites to see what
Speaker 6: they're offering for points. But now there's a site called
Speaker 6: point me. It's so the website's point dot me and
Speaker 6: it's basically like Google flights, but for your award miles.
Speaker 6: It'll pull in a ton of options for all the
Speaker 6: different airlines so you can compare and contrast, Oh, hey,
Speaker 6: maybe I should use my United miles on this flight,
Speaker 6: or actually American has a much better deal. It'll pull
Speaker 6: it all together on one screen, which can help you
Speaker 6: get the best value on flights. So when you have
Speaker 6: to shell out for hotels. Hey, look, if at least
Speaker 6: the flights are free, that is a tremendous savings for
Speaker 6: your travel budget.
Speaker 1: Thanks for this, Brian, really great having on with us.
Speaker 6: Thanks for having me, Safe travels, and to you.
Speaker 1: That's Brian Kelly, The Point Sky with us on Bloomberg Daybreak.
Speaker 1: Our thanks to The Point Sky founder Brian Kelly, and
Speaker 1: we also want to thank BN y Melon's Alicia Levine, Investoes,
Speaker 1: Brian Levitt, and Bloomberg's Michael McKee and Anna Wong. Thanks
Speaker 1: as well to you for joining us on this special
Speaker 1: edition of Bloomberg Daybreak. It's fifty nine minutes past the hour.
Speaker 1: I'm Nathan Hager. Stay with us. The top stories and
Speaker 1: global business headlines are coming up right now