Bloomberg Markets Full Show (05/11/2022)
From the financial centers of the world. This is Bloomberg Markets with Alix Steel and Guy Johnson. It is 30 minutes into the U.S. trading day on this Wednesday May 11th. Here are the top market stories that we're following for you at this hour. High inflation whips markets. You got stocks and bonds. Find a floor after investors face higher inflation
and a potentially more aggressive fed and fight and struggle recession risk. Former New York Fed President Bill Dudley said there is nothing the White House can do about high inflation except tighten fiscal policy. We're going to speak to Jason Furman Council former council chairman of economic advisers and retailers.
Inflation problems supply chains to higher labor costs cloud the environment for retailers. We speak to Jennifer Hyman at Rent the Runway to get her take from New York. I'm Alix Steel is my CO in London. Guy Johnson. Welcome to Bloomberg Markets. Guy. I find it quite interesting that the only part of the markets that seem to be steady in the direction is the front end of the curve. Higher. Higher yields. Yeah. Comic sense doesn't it. And we'll
talk about our question today in just a moment what the bond market is signaling. What I'm really struggling with today Alex is what is happening in the equity market. Even the NASDAQ going positive which seems kind of illogical if you think about where rates potentially keep going. Certainly that is what the short end is signaling that they are going higher. The dollar is also
down. I'm struggling with that one a little bit. Yeah. Legarde signaled that we are going to be seeing a rate rise potentially in July out of the ECB. But the Fed's going to have to be more aggressive than the ECB by some considerable margin. Europe is in stagnant stagnation like knuckles. Talking about that over in the Bundesbank effectively. You've got the German government talking about that. You've got a whole range of ECB speakers referencing that. So I am genuinely Alex struggling with the
price action a little bit today outside of the bull market. And that kind of does take us to our question of the day which is kind of will the recession be necessary. Will a recession be necessary to control inflation. I think that's what the market is grappling with today. So we welcome now onto the show. Bloomberg's international economics and policy correspondent might be key. It's going to take a little bit of a poor six I to see if he's wearing a tie. He's wearing a tie. Excellent. He's quite right. He left the Mark Gurman. Yeah he left them clearly in his desk in New York when he went to California and Florida and then to the islands on the other hand. IRA is not wearing a tie. Our chief U.S. rate strategist IRA Jersey joining us from
Bloomberg Intelligence. All right. I'm going to start with you. The bond market seems like a sort of an area of relative calm today. In some ways it is pricing I think a logical story going forward i.e. we are going to need a recession here fronts and yields up really quite strongly. Ten years is not up by quite so much. The Fed's going to have to raise aggressively and it's going to slow down growth in the near term. Is that what we're seeing here. Well I would argue that we're pricing for growth to be slower in the longer term not not necessarily near-term. In fact I think that the market's pricing for near-term growth to be pretty good. Right. So this whole idea that you know we're not going to be in a recession in the next you know nine to 12
months is probably accurate. But the market certainly is thinking A we're going to be in a very significant growth slowdown toward the end of twenty three and into 2024. And and you know my personal view is is that's going to be very difficult for the Federal Reserve not to continue to hike until such time as demand for goods and services slows significantly. And that's going to cause a recession. Now how deep that recession is I think is important. And you know right now that
the market's bracing for relatively deep recession but it doesn't have to be right because we do have a lot of underlying data that is coming in relatively strong and on the consumer side and and others. So. So I think the jury is still out on how deep that recession will be. But it's hard to imagine. We don't have one. If inflation is going to come down to say under 4 percent. Yeah Mike that's is you're basically turning at the grand master to say yesterday. What kind of roughly what what kind of recession that we were gonna be expecting. Did you learn anything in Florida about that. I don't think that there's anything new in it.
The Fed is going to be tightening and they are going to tighten until inflation starts to come down. Now we're talking about a year out here. What's the inertial situation with inflation by then. Is the Fed have enough tightening in the markets by then. We'll have to see. It's not gonna change their views right now. And it is interesting that we say the Fed is going to cause a recession. The Fed didn't necessarily cause the inflation. They may have played a role in not tightening soon enough but
the recession would just come from it because history shows that when you start tightening the interest rate to bring down inflation you do get recessions. An interesting thing about this chart here is take a look at the blue line in the white line. The blue line there is inflation and the white line is the Fed funds rate. And the Fed has always had to raise the Fed funds rate above inflation to bring it down. And look at where inflation is right now. They have a long way to go. But let's talk about that inflation and try and break it down a
little bit. What we saw today looks like a strong core number and I think that's pretty some component parts which we need to discuss as to why that happened and also clear evidence that we are seeing inflation shifting into services once inflation shifts into services. To my mind it's harder to deal with. Is that what we're looking at here. And is that part of the problem that the Fed faces as well. Well it's part of the problem but it's also part of the solution. Goods prices were really high. They've started to come down. That was expected as people rotate into services. And then what's going to happen is service prices are going to go up but they're not going to go up by the same amount each month. They'll go up in the short term over a couple of months and we'll see some big increases in service prices. And
then that should level out as well. Some of the things in the core that really pushed it up was the biggest thing is housing prices. And the Fed has already pushed up mortgage rates over 5 percent and home sales have started to fall off. Refinancing is dead. And so at this point part of what the Fed needs to do is happening. It just takes a while to get into the numbers. Hey IRA you said before that we do need to see a recession but how deep is really the question if you take a look at what's happening with the front end of the curve how much more repricing do we need to see. Are we going to see that 75 basis point increase now priced in or just kind of more 50s. Yeah I. My view is is that the Federal Reserve is probably going
to do more 50s as opposed to doing a 75 rate because from from their perspective look if they go 75 in July and then 25 and in September why not just go 50 and 50. Right. You're only talking about a six week gap between that. So. So I think that that 50 basis points is now going to be the new normal hike at least for this cycle maybe not in future cycles but for this cycle we're going to go 50s. And I think that the Fed's not going to stop until it does see inflation momentum have rolled over very significantly. Now interestingly I'm looking at implied forward inflation price by the markets. So I'm using inflation swaps zero coupon inflation swaps that you can find on the Bloomberg terminal. And they're telling me right now that we're going to
have two point seven percent inflation in 2023 2024 and 2025. So that's still above that 2 percent target. So you know even right now market expectation is that the Fed's not going to be able to get back to its long term target over the next couple of years. The president just issued statements the president saying he is confident that the Fed will do its job on inflation. President
Biden saying inflation remains quote unacceptably high. Mike to Iris points about the fact that the the market believes that the Fed is going to struggle to get inflation back down to targets. What else do we need to see here. Does Joe Biden need to play a role in this process. Do we need to see as maybe Bill Dudley is suggesting actually that the government gets restrictive hair as well that we actually see both sides of the ledger as it were fiscal and monetary tightening in in kind of unison. And that is how we're going to squeeze it out. Well we are seeing a bit of tightening in fiscal policy. Certainly a lot of tightening from
last year and the year before because the pandemic aid is no longer coming through. But the problem with fiscal policy it just takes a very long time. Even if they all decided in Washington to pass some measures today to spend a little bit less money that the money that's already committed is going to be spent out over the next couple of months and it isn't going to affect inflation. So no there's really nothing that Joe Biden can do at this point unless he can convince oil drillers to ramp up production or something like that. It's it's really on the Fed. Not unless you have energy stocks at record highs. That's what would happen. That's the thing that that would really tip the scales there. I wrote last word to you. Is the bear steeping
are going to be the way forward. I'm sorry. Bear flatter. The way forward. Yeah I think I think we're going to continue to bear flat. And you know when you look at where forward markets are currently pricing we are pricing for the curve to invert. So you choose tends to be at negative territory. And I do think that eventually we'll get there.
Guys thanks a lot. I really appreciate it. Nice to see both of you. Bloomberg's Michael McKee ISE Jersey of Bloomberg Intelligence. Nevertheless you still have equities now on the highs of the session. S&P up by six tenths of one percent. So where do you invest while inflation is running hot. The market's telling you energy. Well this Bettina Dudley agreed. She'll be joining us next. Franklin Mutual Advisors investment strategist and portfolio manager. This is Bloomberg. Inflation is critical. These numbers obviously are too high. So you know this is a bit of a shock to the upside. When does inflation start to ease. We talk the peak which looks like it is in now on a year over year basis is potentially a lot less
important than where these numbers settle and where the plateau is. Inflation is the rise in prices. So it doesn't mean we're seeing peak prices. That's still a major problem for this bond market. A major problem for this Federal Reserve. And as we're seeing a major problem for the valuations that support the S&P 500 will of course depend on the pull for inflation and how policy evolves thereafter. Monetary policy is what's going to be required to keep inflation under control. Instant reaction from Bloomberg TV guest on how the Fed should react to inflation. That brings us to our question of the day. Will it take a recession to control inflation. The immediate market reaction if the number hit a 30 would suggest possibly
yes. But now there's a bit more confusion with the S&P up by about four tenths of one percent. Bottoming out turning around energy leading the way. Katrina Dudley portfolio manager at Flint Franklin Mutual joins us now. Katrina weigh in on that. Does it take a recession to control inflation. And what does that mean for the markets. I think inflation is and recession is one way that we've historically seen that that controls inflation. But let's go
back and take a step back in time and have a look at you know 18 months ago we had a helicopter in the sky that was just dropping money down. And inflation is that 18 months hence outcome of having dropped down all of this monetary supply. So if we take a look at the Fed what is the normal transmission mechanism of rates and to linking it back to inflation. Is the idea is if we increase interest rates you think caught see a contraction in the fiscal budget as other expenses get crowded out and that is what controls inflation. So if we get a fiscal policy that is a little tighter than it's been in the last couple of years that's also a way we can start to control this inflation narrative. As investors what do we do with this Katrina. I don't know yet.
And I'm not sure the market does yet either. I don't know how far the Fed is going to have to go to get the economy to get inflation under control. How do I price assets if I don't know the answer to that question. Well let's take a look what happened at the Bank of England and look at when they were looking at increasing rates and people like how can you do this when you know food prices energy prices housing prices at our own time highs and the inflation there. So the Fed is walking a fairly significant tightrope. I think the first thing we need to acknowledge is that the Fed was suspected to do 75 flips. It came in at 50. So they're actually slightly less hawkish than they've been. They balancing this against the fact that they are behind the curve. You know we probably should have seen these rate hikes happen earlier versus later. Now they
have the next few meetings. And I think that we're expecting a 50 basis point increase at the next meeting. Some people think it could be as high as seventy five. I think it's more likely to be 50. And they still do have the option of just tapering that down to maybe even not to 50 that do twenty five twenty five point five. So Katrina what do you buy in that kind of scenario. I mean no surprise but Mike Wilson at Morgan Stanley continues to be relatively bearish. He likes defensives like he likes energy real estate utilities health care. Those are kind of all the ones that are up today. You just kind of buy into that value trade then. I think we have to be very careful about what we're using to predict what we need to buy to protect. Because if you
take a look the algorithms and the relationships that have worked for the last 15 years have been based on assumptions of low interest rate free money and zero country risk premium. And those three aspects of the equation have all changed. We know that the Fed is raising rates. They know the real yields are still negative because of the high inflation. But inflation is not going to be 1 percent going forward. I think consensus and expectations are that three to four range is where it settles down. I know the Fed's targeting too but I think it will be higher. So you've got it. You can't just say let's go back into what worked last time. You need to really think about where do I want to be positioned going forward.
If that's the case the Fed is going to have to be restrictive. It's going to have to go further than maybe the market is pricing at the moment. At the moment the market is pricing kind of circuit 3 percent. Bill Dudley is talking about 4 percent. Fed funds rates 5 6 7 8. Potentially we could go significantly higher than the market is pricing Katrina. If that turns out to be the case current models are wrong. The levels at which we have risk assets risk free assets are wrong. So how is it
invested. Do you deal with that right now. I. Just putting your finger to the air and hoping. Is that anything can actually usefully tell us how we price these assets. OK so let's. Let's think about where where you don't want to be when you're looking at a rising rate environment. Profitless tech which has sold off significantly is a difficult area to be when you're looking at rising risk and country risk premiums. You want to look at those countries where you have risk of expropriation of assets. We've seen that in Russia. I would say that we're cautiously looking at some of the risks in China and thinking about what happens
there. The area where I think you've got a lot of opportunity for value is in stocks which are pricing in a recession. And that the recession we think that they're pricing in is a much more significant recession that we think than we think is going to occur. Right. And that we think that the business models have changed. So I think that there are a lot of opportunities. I think they're actually very different from what Mike Wilson is saying in delving to the defensives. We're looking to buy some of the cyclical parts of the market that are over pricing in a recession. So it all comes down to valuation and expectations.
But we think there's some really great opportunities out there. Katrina can you get more specific then. Maybe the sectors or areas. We'd like some of the industrial space you've been talking about. You're more of the energy space and everything. I think obviously energy had a very significant run. And you look at the stock prices there on the energy conflicts. I think Alix Steel in the break we were talking about the fact that high energy stock prices may encourage these CEOs to invest. I think actually the opposite. The high stock prices are reflecting the high commodity costs but also the capital discipline that these
companies are showing. And I think that they're in a bit of a conundrum because ESG is directly for them to not invest the fact that their stock prices is high. It's directing them not to invest. And so I think that they are coming in and investing will be a very difficult decision and it'll be a lot longer decision than what you've seen in the past. On the cyclical side of the market we're looking at some early cycle companies and those early
cycle companies are the ones that tend to go down first when the P PMI start dropping. And that's where we think of the markets being overly bearish and some really great opportunities. Katrina what have you got wrong recently. What what is working what's not working. I think what I got wrong going into the beginning of this year is I didn't own enough hard assets and so hard assets being the miners and being we we aren't very good position in the energy stocks but we weren't really overweight into the mining stocks. And obviously you've seen a big rally in those stocks. They have come off somewhat. So I think that that is the area where I wish you know in hindsight that I had some exposure that I don't you know some of these mining companies though know if the if the commodity prices come down the valuations will compress significantly. And this so tethered to these commodity prices that it does make it difficult as an investor. And obviously
there's such a small population of them. But I do subscribe to the fact that we actually have a different set of facts that are going to drive the market going forward. And a lot of those new names are going to be in that hot asset category. Great catch up Katrina. Really appreciate your time as ever. Katrina Dudley Franklin Mitchell Advisors greatly appreciate it. We're going to pivot. We're going to talk about some other assets that are having a tough time right now. How do you rescue
a stable coin after it crashes. By definition it's meant to be stable back and trying to raise money for one. We'll talk about that next. This is Bloomberg. Another fun day. The crypto space. So the backers of terror USD the stable coin are hoping to know. Now come to its rescue and it's in need of rescue. The token is loosely pegged to the dollar but today it's fallen all the way to forty five cents.
Well let's just actually take a look at the latest pricing. Where are we. 48 49. But nevertheless big drops coming through here and the situation is fairly volatile. So what is it going to do. What is it going to be. What is it going to require to get this thing moving. Sonali Basak is here. Should I just what we through the price action. First of all this is a very bumpy story that we're looking at here right now. We saw a spike a little while ago. That's faded very quickly. Just walk is what we've seen throughout this morning. I think one thing that's very important to note here Guy is ever since the BLOCK had
reported yesterday that the Luna Foundation would seek to shore up capital raise more than a billion dollars in order to stabilize the stable coin the prices have dropped even more. And you look at what's on coin market cap terrorists U.S. T is down 46 percent to 49 cents in 24 hours. So that deep pegging is much more drastic when you look at what it's trading on at Coinbase. It's actually lower than that. It's thirty eight cents. So there is a real risk for this stable coin as it looks to shore up if pegged to the dollar. But the question is does this stable coin survive at the end. Remember this is a massive deep five projected runs on the Aryan network. And the question is is there systemic risks associated with a stable. Okay. Okay. Phillip me. Yeah. Let's talk about others. How other stable coins and I use the term loosely it seems how others are
behaving. Well one thing that's interesting is to look at U.S. D.C. which is the circle stable coin that has a closer tie to the actual dollar whereas that terrorist stable coin is actually more closely linked to Luna which is a sister token that really traders arbitrage the to to make sure that the prices stay stable. It's an algorithmic stable coin where the prices are not actually pegged to the U.S. dollar. I think the question that is underpinning all of this and the question that underpins regulators is to what extent do you start see ripple effects in other asset classes beyond crypto currencies. OK. Talk to me about how a rescue works. What happens. How does this process actually unfold. It's funny. I've heard it described in a couple of ways. If I had to use some of the market ways that folks are thinking
about this is you know does it resemble Robin Hood in the wake of the blow up that we saw. I guess now a couple of years ago. Or does it resemble an emerging market who loses their currency peg and needs shoring up. Another way that this has been talked about for example is Luna Foundation actually uses Bitcoin as reserve here. Do they need to sell more bitcoin to keep their peg to the dollar when it comes to the U.S. Treasury. And anyway you look at it as a
shoring up any fund as you've seen funds been shored up before. They need capital. The question is what does that do in terms of confidence for anybody that has been trading Luna. And remember the thing that's important remember here is it's not just retail investors actually. They're big funds behind this. The question that remains is what do firms like Galaxy which has its Mike Novogratz this firm which has long bet on Luna Mike Novogratz actually has a Luna tattoo. He has been so bullish on the coin. And what does it mean for jump trading as well. That has been
said to have some connection to Luna as well. Absolutely. We are going to watch this space where the interest is. You say some ripple effects into other areas. Sonali Basak. Thank you very much indeed. Equities are surging on both sides of the Atlantic. European stocks are up really strongly on the back of that inflation data. We're going to talk inflation data. Jason Furman is going to join us next. This is Bloomberg.
For an hour into the U.S. trading session probably not what you expected we would see if you're looking that CPI number at a 30 Bloomberg Abigail Doolittle is tracking all those moves for us. Up again. Hey Alex. Well yeah. Really a wild day here for the S&P 500. These are the many futures so you can see for the overnight session up slightly and then higher in two. Ahead of
that CPI print up more than 1 percent and then down down down down close to 1 percent. And now we're up about nine tenths of one percent. So this intraday volatility and trying to figure out what to make of that CPI print coming in hotter than expected but perhaps not so surprising to everybody. And as we just mentioned the 10 year yield basically staying flat. So an
interesting day. What we do know though is behind this gain is very broad based. We go into the Bloomberg terminal and take a look at the IMF. We are going to see most sectors are higher led by three of the biggest inflation sectors including energy materials and real estate but even tech sensitive to rates going higher. You have tech up just ever so slightly now flipping lower again. That's going to be the critical one on the day. As for some of the big movers behind the scenes. Let's take a look at those because it is a broad based rally not just from a sector standpoint but also a stock sector stock standpoint. Not surprisingly Exxon Mobile up three point two percent. Energy the strongest sector alphabet higher though. So there you have a
communication services named J.P. Morgan. We finally have banks getting a bid with yields up a little bit and then MMD and other tech name up three point nine percent. One area guy though that is not feeling much love and that of course the homebuilders on the year huge declines the likes of Lenore D.R. Horton and Toll Brothers. This of course is the 30 year mortgage rate here in the U.S. ticks up 2.5 percent to five point six percent. Really pretty incredible. So the housing market starting to not only
just slow but it's going to be interesting to see if it really falls in any sort of a big way. Guy. One of the transmission mechanisms of higher rates potentially working its way into the US economy Abigail Doolittle thank you very much indeed. So it's a sign that inflation in the United States will probably persist that elevated levels for a longer period. That is the read on today's data CPI rising by more than forecast in April. Here's what President Biden said yesterday about rising prices and the reaction to today's numbers by former New York Fed President Bill Dudley. Inflation is our top
economic challenge right now. I'm taking inflation very seriously and it's my top domestic priority. The president's ability to do something about inflation is extremely limited. Really the only thing the president can do is get Congress to tighten fiscal policy to make the Fed's job more easy. Joining us now Jason Furman Harvard University professor and former Council of Economic Advisers chairman Jason.
How do we get inflation down. It looks like it's more sticky than we anticipated. It's broader than we anticipated. Are we going to need a recession to get it under control. Look I hope not. I would go with the strategy of hope for the next six months. The strategy of hope is raise interest rates a decent amount maybe put that seventy five basis point increase
back on the table convince investors that you're going to keep going and the Fed funds rate could go well above for now. I don't know that that's going to be enough but I try that before I try anything else. And is it then really the question of what is leading inflation more the supply or demand side. It's the demand side. It feels like we have to have that demand destruction hence a recession. If it's the supply side maybe that's a different story. I think inflation is mostly demand driven. When I look at the past six months I look at a surprisingly high level of demand
for goods that has been sustained at the same time. Demand for services has risen month after month after month that roughly matches what we're seeing in these inflation numbers. Up the service inflation has risen core services for five straight months now. That is very much a demand story because you've had a lot of workers returning to the labor force in those five months. But yet prices continue to rise faster and faster month after month. In terms of what you see now in the market Jason and you're not a market strategist but do you think we are underestimating the task still. I think that the market is underestimating at the long end. When I look at something like the probability that the Fed funds rate rises about 4 percent being close to zero I think that's just nuts. On 4 percent with inflation where it is right now might actually be the neutral rate that might not even be a
contractionary rate. So I think the Fed has done a good job of convincing everyone it's going to raise rates very quickly at the next couple of meetings. It needs to do a better job communicating that it may have to stay at the task for some time. We may need high rates. And by the way a recession may not be enough to bring inflation back to where you wanted to be.
This may be something we're struggling with for years. OK. That's definitely a grimmer outlook. So if that's the case if the Fed stays more aggressive for longer and with a terminal rate is a lot higher than we thought etc.. What else can be done if that's not enough to bring inflation under control. What else needs to happen. Bill Dudley talking about we're gonna have to see a contraction in fiscal policy. For that to be the case. But the White House doesn't have a lot of tools. One tool it
does have is tariffs on China. It should do that to bring inflation down. Another tool it has is resuming interest payments on student debt. The unemployment rate for college graduates is in the TOS right now. We could resume that. That would also help bring inflation down and then build up. They talked about fiscal policy and a fiscal contraction. You know I'd say of wait six months. But if the monetary policy
isn't working six months a year from now we should be having a serious conversation about fiscal policy helping out. Jason isn't it the case though that we're already behind the curve. Waiting for another six months. Isn't that a huge risk at this point. OK just to be clear the Fed shouldn't be waiting and the Fed isn't waiting and waiting. Yeah it's a 50 basis points. But if that. But the Fed. What the Fed is going to currently got price.
The market. What what is currently expected is clearly not going to be enough. So the Fed is going to remain behind the curve during the period that you're talking about. That's six months. I appreciate you saying we got to wait and see Juliette Saly. We all got to take action. But what is there a danger that we're not going to be taking enough and we're still going to be behind the curve and we're gonna have to do even more further down the road. What is even more further down the road look like. Look I have a high inflation forecast but I might be wrong. I wouldn't say that did everything on my forecasts being right. I think at this point the thing you should do is say there's so much uncertainty
you're not going to change course until you see actual inflation come down. You're not going to act on the basis of forecast. You're going to act on the basis of data. And if the Fed is raising rates at 50 basis points as they put 75 basis points back on the table. If they tell us rates may go about for a lot of that gets priced in in advance to financial
conditions financial conditions. Again a lot of work right now. What we've seen with the markets what we've seen with mortgage rates. Jason can you tie that into politics of me for a second. Bloomberg has a big take kind of every day when they do a deep dive into certain topics. And in this one they talk about inflation in Midland Texas which is very dependent on oil in the
Permian Basin. And some of the anecdotes there are really staggering things like a gallon of milk costs six dollars. The feds ask me I'll do anything about that. That means that that's going to have to come from somewhere else. What do you do if you're in the White House right now and you have midterms coming up around the corner and someone's paying six dollars a gallon for milk. Look the president. One thing he did yesterday that was right was he did not overpromise. You did not say you know don't worry in a couple of months this inflation is going away. That it
could be with us all year and said it could be with us into next year. And so I think under promising and over delivering it is a better strategy than the alternative. But you know there's no way to handle this until inflation comes down a little bit. They can do drop the tariffs resume the interest payments on student loans. But you know beyond that
empathy patience not over promising. That's really all you can do if you're sitting in the White House politically. Jason what did you make of the Bank of England's communication strategy. The bank giving and basically said we're going to be tightening but we're gonna to see a pretty aggressive recession. It is the Bank of England just kind of unclear on what the outcome is likely to be here or do you think the Bank of England is the model on which other central banks ultimately are going to have to settle. Look the UK is the other country in the world that has inflation almost as high as the United States. Not quite but almost as high as the United States. And you know they're probably saying what we're going to be
saying six months from now. Again I don't know if the curve is a if being with the curve means deliberately causing a recession based on the data we have now. I don't want to be with the curve. Right. What might be behind the curve. Learning a little bit about what is needed. Again the Fed's moves right now are in historic terms really really aggressive in terms of the rate of change in terms of the level. There's still this still very dovish setting. And I'd stick with that strategy but be prepared
to escalate. So Jason to be able to do a little compare and contrast if we look in the VOA the Fed and the ECB a big part of the conversation has also been the stronger dollar kind of what enables the dollar to tend to cap what's going to support the other currency markets. I'm wondering the role the dollar in your inflation and then potentially recession scenario. Yeah. Look inflation United States core inflation is running at 3 percentage points faster than it is in the euro area. There's a reason the ECB has moved much much less than the Fed has moved. Even if they lift off sooner than they were planning on they're still going to be and they still should be way behind the Fed.
So the dollar should be stronger. And that is yet another headwind for the U.S. economy along with lower equity prices and incredibly not incredibly high but incredible increase in mortgage rates. So exchange rates mortgage rates the stock market a lot of the Fed's job is being done for it right now and for good reason. Jason we really appreciate your perspective. Perfect day to get it. Jason Furman a Harvard University professor and former Council of Economic Advisors chairman thank you very much. Can't believe that mortgage rate 5.5 percent. That's unreal for 30 year at least in the recent past. Coming up
we're going to look at how inflation is now hitting retail company. Is it going to top with rent the runway. CEO Jennifer Hyman that's coming up next. This is Bloomberg. This is Bloomberg Markets could get to you're looking at a live shot of the principal room coming up the Libya angle the State Street Global Advisors seat I O of course acting point equities. That's on Bloomberg TV 330 p.m. your time. This is Bloomberg. Keeping you up to date with news from around the world is the best word. I'm sure you could get to the US House has approved a
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provide assistance to those involved in anti-government protests. Global news 24 hours a day on air and on Bloomberg Quicktake had by more than twenty seven hundred journalists and analysts in more than 120 countries on which could get to. This is Glenn Beck Ali. All right. Thanks so much Rick. As we've been talking about all morning inflation is high perhaps even stickier. And now one company says that actually it's an opportunity that company rent the runway. The apparel rental company says consumers will look for more affordable ways to get the clothes they need. And joining us now rent the runways CEO
Jennifer Hyman. Jennifer great to see you. So great to see you. So talk to me about how you get your clothes and then how you deal with shipping them and renting them. And I want to get a full picture of how you look at inflation. Your input costs and what you can charge and how you navigate all of that in this really choppy
environment. Sure. So first let's talk about the consumer. The prices of a piece of apparel have gone up 5 percent year over year. So now when you are getting an invitation to a wedding and there's two point six million weddings this year and you're making a more thoughtful choice do I need to buy this dress that I know I'm only going to wear once or twice. Or is there a better option. Should I rent it.
So I think that you have inflationary pressures where people are thinking about smarter decisions they want to make in terms of how they spend their money coupled with the fact that you have a reopening where people actually want to experience life again and they're spending their money on experiences on concerts on travel et cetera. So it creates an incredible environment to kind of position rent the runway as a smarter way to get dressed for your everyday life a smarter way to get dressed for your events. In terms of our inventory we source our inventory directly from over 800 brands. And one of the key benefits of our platform is that we continue to monetize inventory over the course of multiple years. So we have an assortment on our platform that's new inventory
from 20 22. But also as inventory from previous years. So let's say there are supply chain issues where an order comes a week or too late. That doesn't really impact us in the same way that it impacts a traditional retailer. Because we already have millions of items on our platform that women can choose from. So today we have one of the largest assortments of special occasion inventory I would say in the country.
But certainly the largest assortment we've ever had because we've been planning for this massive reopening of celebration. So you make a compelling case. So then I'm wondering if you could talk a little bit about the stock price. What do you feel like investors are not getting. The shares are down so much since the IPO. What do they not understand then about that story. Does it need to be profitable. And if that is when does that happen. So we've outlined a clear plan of driving the business to free cash flow profitability which is our number one goal. We can do it with the cash that we have.
We also laid out that we only need 300000 subscribers to get the business to free cash flow profitability and that our growth projections this year are for 45 to 50 percent growth this year alone. So we also have a community of millions of women who have rented the runway in the past for a special event and we find that 50 percent of our subscribers actually come from former customers. So what this year is going to be about is building the funnel of customers that will fuel our growth not only this year but fuel costs highly efficient growth for many years to come. Jennifer it's guy London is the average spend going to go up. You described the kind of logic behind the model in the current
environment where consumers are being squeezed are they're going to be spending more or less. Well on our platform we're providing the customer with 20 x the GMV value for her spend. So when she spends one hundred forty bucks on a monthly subscription with us she's getting four thousand dollars in retail value of clothing which is actually now going up because the price of clothing is higher. So the savings are already there. The enormous financial value that we deliver to the customer in addition to the fact that she doesn't have to pay for cleaning that it comes directly to her and she's not paying for the shipping on our platform. So I think that that's added benefit. Now let's think about what happened during
the last kind of recessionary environment in 2008. We saw that in that last recession recessionary environment. There were two massive things that happened in the apparel industry. Number one is people still still bought clothes. They still bought 68 new articles of clothing per year. They changed the places that they consume those clothing from. So you saw massive growth in off price. So businesses like Ross or T.J. Max and you saw the emergencies of businesses like Gilt Groupe who were providing kind of high value brands at low prices. At that point in time we did not have the resale market as another kind of trade down
option. Right now rent the runway is an option just like the T.J. Max. Just like a Shery Ahn just like an H M for a more efficient way to express herself and get dressed for the many things you have going on in your life. So interesting that you mention that because I also feel like competitors have been catching on to that. So now a lot of individual brands have either their own resale market or they have their own rental option as well. It's a very different landscape than when you guys started. How do you manage that. Well I think that from the consumer's standpoint the reason why the consumer comes to us is
for unlimited variety. She wants millions of choices. She wants the eight hundred brands. I think that the consumer doesn't want to wear the same brand all day every single day. It's like what's the value proposition of having a subscription just to do a LIPA as opposed to having a subscription to Spotify. You want the world of music at your fingertips just like rent. The runway gives you the world of fashion. So we think it's fantastic that brands are innovating and pushing and an understanding that
second hand commerce is here to stay and has to be part of their business model. And that's why we have 100 percent retention of the 800 plus designer brands that we work with over 13 years. Jennifer is this special occasions or is this back to work as well. What is wearing as they come back to work. So it is back to work. It's special occasions. It's vacations. It's everyday life. What we're finding across every single use case is they are wearing the most colorful the most fashion forward the most celebratory and the most scandalous inventory that I have seen in 13 years of being in business. Now let's talk about work
specifically. So because most offices are coming back to work in a hybrid manner. What that means and people haven't bought work where for the past two years it means that investing in a work wardrobe doesn't make the same financial sense anymore because you don't know what you're going to wear to the office. You don't know how many days a week you're going to be going in. So a subscription to fashion where you can kind of utilize that for work makes even more sense today than it did in the past. And we're finding that people are renting work away from us but it's totally different than what they rented in 20 19. They're
renting and feel more comfortable wearing more fashionable things to work wearing more casual things to work wearing a pink blazer as opposed to a black blazer wearing a dress with a print on it as opposed to just wearing a black shift dress. And I think that that means for women that they have more choices. But it also leads them to need more variety. Women can't wear that same black suit to work anymore and and shift out their blouse every single day. Right. Guy has no idea. We're talking about how many sweaters you own guy. Not many 68 Mike Sims of new clothing. Every year I think it probably starts with a six with me. I'm not even sure I get that far. But it is just a six. I don't know. Yeah I was going to say maybe four. 6 is overdoing it there. But Jennifer thanks a lot. We really appreciate your time today. Jennifer Hyman Rent the
Runway CEO. Thank you very much. More on guy shopping habits. This is Bloomberg. Circa half an hour to go to European close let's talk about the price action over here. Stocks are roaring its luxury stocks its energy stocks as the car sector all doing really well here in Europe. Stocks six 600 up by one and a half percent well off its lows. We saw that CPI dip and we bounced very strongly off that intraday low. We are seeing the bond market on offer. We've got
the German 10 year back well north of 1 percent. Keep an eye on what is happening there. B.T. PS Interestingly enough our bid today and then we come to actually one of the more interesting stories I think out of Europe today and that is what is happening with nat gas. This is the Dutch contract. Stand by around 5 per cent despite concerns about what is happening in Ukraine and the shutting off of one of the major entry points for Russian gas. We are seeing maybe warmer weather the arrival of a lot of LNG into Europe as well maybe just keeping the mark market relatively calm. So in the next hour we're going to talk about their so-called exclusive conversation coming up. Yuri Return Co is going to join us again. He of course is the CEO of
the Ukrainian gas company Naphtha Gas. We could be talking to him next trying to figure out exactly what is happening with that Russian transit of gas. We'll talk about it next. This is Bloomberg Daybreak.