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Host
Bloomberg Audio Studios Podcasts Radio News this is Bloomberg
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Podcast Announcer
Business Week Daily reporting from the magazine that helps global leaders stay ahead with insight on the people, companies and trends shaping today's complex economy. Plus global business, finance and tech news as it happens. The Bloomberg Business Week Daily podcast with Carol Massar and Tim Stanweck on Bloomberg Radio.
- [01:37]
Host
We are just seconds away from the minutes from the second Fed decision of 2026. Tim that was back on March 18th. A rally underway though, and yields have pulled back of this.
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Co-Host/Analyst
That's ahead of this. Think back to when that meeting happened though. US treasury slumped, short term yields soared to their highest in about five months. And we're getting Fed minutes in just a second.
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Host
And with that off to Mike McKee. He's at the Fed in D.C. mIKE well, no surprise.
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Mike McKee
The Iran war and tariffs were central to the discussion among Fed officials at their March meeting. The full effect of tariffs had not yet moved through the economy, officials said. A resilient economy, they called it. And the war, then only a few weeks old, raised the threat of inflation increasing and hiring slowing. Some participants judged there was a strong case for a two sided description of the committee's future interest rate decisions in their post meeting statement, reflecting the possibility that higher inflation might call for rates to be increased. Although no member called for a rate move at that meeting, most participants raised the concern that a protracted war could lead to further softening of labor markets, which would warrant additional rate cuts. But many participants pointed to the risk of inflation remaining elevated for longer than expected which quote, could call for for rate increases. The vast majority of participants noted that progress toward the committee's 2% objective could be slower than previously expected. The minutes say labor market conditions appeared vulnerable to adverse shock. They say most participants highlighting the risk that a protracted conflict in the Middle east could weigh on business sentiment and further reduce hiring. As for policy, most participants felt it was too early to judge how the war would affect the economy. Many participants judging that in time it would likely become appropriate to lower the target range for the federal funds rate if inflation were to decline in line with their expectations. A couple highlighted, though, that they had pushed their assessment of the most likely timing of rate cuts further into the future. Steven Myron, though not named, was the only dissenter. The minutes do note that one participant argued rates were still restrictive and that was increasing risks to the labor market.
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Co-Host/Analyst
Guys, Mike, this is the moment where we, we sort of parse language here and we ask you to translate what different words means when it comes to these minutes. The word protracted, you know, that has to do with a period of time, a longer period of time. I go to that word because the Fed said, most said that protracted war could hit jobs warrant cuts.
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Analyst/Commentator
How long is protracted?
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Mike McKee
You know, they, they do have a guide to Federal Reserve terminology in terms of some, etc. But they don't have definition of what protracted means. Obviously it would have suggested that the war could last for several months or longer. We're kind of in a middle period now. Hard to know whether this fits that model or not.
- [04:41]
Host
All right, Mike, we're going to come back to you in just a moment. Our Mike McKee there at the Federal Reserve. We're going to continue with Mike in just a moment. Do you want to check on the markets in terms of what we've seen in terms of reaction? Because, listen, folks, we saw a reset happening late last night into this morning because of what is going on, easing tensions, or so it seems when it comes to the US War in Iran. Having said that, as for the s and P500, pretty much where we were prior to the release of these Fed minutes. Same story for the NASDAQ 100. Just a little bit of a move to the upside, probably more importantly is what's going on in the treasury market. And I'm just taking a look all along the curve in terms of what we're seeing. And we're pretty much where we were prior to the release of those Fed minutes. So, you know, maybe investors, of course, a little bit of, I don't know. I think they're just focusing on the war at this point and maybe just kind of happy in terms of that happening at this point, although there are a lot of questions about that. Mike, I want to go back to you. I mean, can we. Will the Fed start to look through the war based on what we got, or, you know, we still have a lot of questions about what happens next?
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Mike McKee
Too early to reach a judgment on that yet, because the war has maybe not ended. We don't know for sure. We've had conflicting headlines all day. Most Fed officials who've spoken in the run up to their next meetings since the last meeting so far have basically said the same thing, that the minutes suggest that there are increased risks to inflation that could come, starting with oil prices and then working their way through the economy. They also note that tariffs had come still yet to work their way through the economy and we might get more. So there's a lot they don't know at this point. And I think the minutes really don't give us any more clarity since they were three weeks ago and nothing has happened. That gives us more clarity into the future direction of interest rates and oil prices and everything else at the moment.
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Co-Host/Analyst
The next move from the Fed, Mike, not whether it's going to, you know, the Fed's going to just not change rates, but is it. Are people still thinking the next move could actually be higher rather than lower?
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Mike McKee
No, it doesn't appear that way right now. We don't have a good measure of inflation since the war started. Friday we get cpi. That'll be our first real clue. And then we'll watch PPI the following week. We do get PC inflation tomorrow, but that's for February, so it's not going to tell us anything. But the other two inflation measures will give us an idea of what the initial shock is. Now we're already into April at the highs of gasoline prices, so we'll have to see if they stay elevated throughout the month, what that's going to mean for inflation. The word we get from oil companies and shipping companies is that this is going to take a while to work its way out of the economy, even if the war ended today. So they're likely going to be faced with uncertainty for quite some time. And I would imagine that we'll get a very similar meeting and minutes when they meet on the 29th of this month, because they're basically going to have to say the same things. Inflation could rise, it could become longer lasting, the labor market could weaken. But we just don't know yet.
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Host
Yeah, Mike, sit tight for a sec. We want to bring into the conversation because here in studio with us. Back with us is Matt Lizardi. He's Deutsche bank chief U.S. economist, head of U.S. economic research. As we said, right here in our studio listening to Mike break it down. Good to have you back.
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Matt Lizardi
Good to be back.
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Host
What jumps out for you?
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Matt Lizardi
Yeah, I think Mike kind of highlighted things and actually the note that he was talking about where the Fed goes through their account numbers, I had it up in front of me and I think the one thing that sticks out, back in January, several Fed officials were pushing for this two sided language. They wanted to open up to the possibility that the next move could be a hike in addition to being a cut. At the March meeting, it looks like this group grew a little bit. So now some rather than several officials are in that group. Some in the Fed's lexicon is actually more than several. So you do see that group as growing. Now Chair Powell at the meeting in March didn't actually note this. He didn't push that. He was asked about it specifically. So I think you've seen that group grow. Now the minutes always can be stale, right? There's several weeks ago, especially in an environment where things are evolving so quickly.
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Host
But sometimes I love it because it kind of just reminds us, okay, here's where we were before some of the craziness. And then like, do we get back to that or does that crazy craziness, Matt, affect us longer term? Stay with us.
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Matt Lizardi
And it gives you a sense of, you know, how hawkish were they, for example, before we got a much stronger jobs report which could have alleviated some of the concerns about downside risks of the labor market. And so that context matters a lot.
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Host
Do you want to ask Mike a question?
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Matt Lizardi
So Mike, from, from, from, from the minutes perspective, do you see a sense that the Fed could be opening up more to rate hikes as, as we look ahead? I like the question about protracted nature. I thought that that was really giving the Fed optimal flexibility and optionality to respond however they might want. But your overall read of the minutes is the Fed inching closer to potentially this, this two sided language. Do you think they adopt that at the April meeting?
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Mike McKee
I don't think they will. It'll really depend on what happens with the inflation numbers. They could, and you're right, we have seen more people talking in that area. I think the sentence that you highlighted, the other part of it was in the January meeting, some members said they could support the idea of a two sided explanation. And this time they said there was a strong case for it. So what that tells me is that probably the case is going to be stronger for no move and the people who wanted to cut are going to be fewer at the next meeting because they still don't know and the risk is a little more two sided. But I can't say that it really sets them up to raise rates at this point because in theory things might get better by then.
- [10:52]
Host
It's like, honey, I said some. No, I meant more like I don't know the nuances. Hey Mike, before you go, last thing on your mind when you think about the US Economy. So much coming at folks, I can't wait for earnings. I want to see what CEOs and the C Suite has to say about the outlook, if they're willing to commit. But what's top of mind for you here?
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Mike McKee
Well, you make an important point about earnings and what CEOs say because they do note in the minutes that tariffs had caused companies to stand aside and not make decisions and that continued price, price increases from the war could cause companies to cut back on hiring. So those are the kind of outlooks we'd like to see from the CEOs that will give us a better idea of where the economy is going. But overall, what I take away is that the Fed officials are just like the rest of us and the folks on Wall street, they don't know what's going to happen, but they stand ready to respond in whatever direction with whatever they can do to help, which is
- [11:50]
Host
kind of what you want in a central bank. All right, Mike, you can come back home. So we'll be welcoming you back. Of course, our Michael McKee, Bloomberg TV and radio, international economics and policy correspondent. But still with us, Matt Lazetti. Matt, fundamentally, how is the US Doing? Like, what do you think about it?
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Matt Lizardi
I think if you take a step back and you look at the incoming data, we have an economy where growth has been very resilient. The economy has experienced abnormal and historic shocks over the past 12 to 18 months. Despite that, the economy has been continuing to grow at 2% or above the labor market. Extreme volatility in the month to month readings. But if you look at the unemployment rate, today is about where it was last summer. It's still at historically low levels, almost 4.2%. Most measures of labor market slack are very stable. The hiring rate has been stable, the quits rate's been stable. And so despite all the worries, despite the fact that we are experiencing the significant adverse shocks that are putting attention to the Fed's dual mandate. The economy is actually performing quite well.
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Co-Host/Analyst
The economy is not monolithic and there are different parts of the economy and the way that, you know, different people feel this energy shock is a lot different. We spoke to Chris Britt, the CEO of Chime last week. This NEO bank or Fintech or whatever you want to call it, where the average income of the user is about $75,000. He said his consumers fuel spending rose 25% over the last month as a result of of the war with Iran. What does it do when that consumer is hit so hard to your outlook of the U.S. economy?
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Matt Lizardi
Yeah, you know you've had an economy and part of this is always the state for the US economy which is that it is heavily skewed in terms of the impact of consumer spending towards higher income households that drive a disproportionate share of consumer spending. Now the shocks that we are seeing tend to be regressive. So they're hitting the middle and lower part of the income distribution more so they're raising fuel prices, they will be raising food prices, most likely. The tariffs that we've seen impact goods more than they do services. So all those are negatively impacting the lower part of the income distribution. That part of the income distribution is generally always more fragile but has been shown to be more fragile in an environment of higher interest rates, higher inflation that we've seen. But if you take a step back, all of the aggregate spending data still looks quite good. Consumer spending looks relatively solid from a business capex perspective. Yesterday we got durable goods orders and shipments which, which remain pretty, pretty solid. So there's still these kind of distributional concerns about the consumer and the broader economy. But on average in the aggregate things look very resilient.
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Host
So we keep talking that a lot around this table about though the longer impact of the war and I can't remember.
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Co-Host/Analyst
Protracted. Protracted in the words of the Federal Reserve.
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Host
Yes, exactly. But I just think about, and I can't remember if we've talked about this yet with you is that this idea that you have nations thinking about what they need to protect domestically for their national security and so producing more at home, making sure they have access to raw materials. I don't know, I'm obsessed with this about the rethink and I do wonder if that's factoring into your models longer term. And with that I think about labor costs in here. That would make things probably more expensive here. Even if you take out the Moving stuff around, costs, costs. I just think about what that does to inflation longer term.
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Matt Lizardi
Yes. I think there's probably two aspects of this. One is supply chain resiliency. And it was a key topic coming out of the pandemic, and maybe we've forgotten a little bit about it over the past several years, even though you had this historic tariff shock. But what's happening over the past month certainly intensifies those concerns. Now, it might mean that you have to invest more across multiple supply chains, you incur more costs because of that, and therefore, yes, you're more resilient, but at the same time, your average cost is higher. And so that could feed into inflationary pressures. The other part of this is, how are people thinking about their own defense? And so, you know, can European economies rely less on the US for defense? I think certainly we've seen Germany take a strong stance on that position. Significant investments in their own defense industries and infrastructure. And that will mean globally fiscal policy is more proactive than it has been in the past. And because of that, inflation will be higher as well.
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Host
Guns versus butter. Like thinking about the impact on what that does for society.
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Matt Lizardi
Correct. I think ultimately it will squeeze out and push out some of the private sector, will overall raise interest rates, keep interest rates higher and inflation higher.
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Co-Host/Analyst
You know, when we talk about a duration of a conflict like this, I think there's this idea that, okay, we're in a period where a ceasefire has been announced, but it's clear that things aren't going back to what they were before February 28th. Oil's not there. Maybe the excitement about what could it could go back to is there, but there's still skirmishes happening and there's still negotiations to be had. Is there a chance that the war may not look like it did in the first five weeks, but there is still a heavy presence by the United States and Israel in the region for a long time to come, and that affects the economy.
- [16:49]
Matt Lizardi
Yeah, I think we have to think that there's still uncertainty here.
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Public Ad Narrator
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- [16:52]
Matt Lizardi
We're in day one of what is still an uncertain truce at this point. And so you know how the world looks 2, 3, 4, 5, 6 months down the road remains highly uncertain. I think it is very likely that energy prices are just higher than they were before the recent events. In part, that's because even if the Strait of Hormuz picks back, reopens fully, and we're not clearly not there yet.
- [17:18]
Co-Host/Analyst
No, it's oil transit remains halted now.
- [17:20]
Matt Lizardi
Correct. So we're clearly not there yet. But you've had some damage to energy infrastructure in the region, which is absolutely critical and that's going to take longer to get on, on track. So I think regardless, you are likely in a world where energy prices overall and therefore inflation for this year is going to be higher as a result. Now I think the US Economy can absorb that and I think that it can be resilient in response to that. I think if oil prices were to move up to $150 a barrel, that's the period where we became really worried that it could wipe out the benefits of tax cuts to U.S. consumers, you might get into nonlinear effects on, on the economy where growth begins to be more damaged. So, you know, yes, I think it has lingering effects on inflation. I think that impacts the Fed in a hawkish direction, but it doesn't necessarily overturn a relative relatively resilient view for the economy.
- [18:07]
Host
Matt, want to throw one more thing? And you know, before the war, I mean, every conversation either started or somehow worked its way to artificial intelligence. And you guys have done a lot of work work. Certainly we've talked a lot about the impact, potential impact on the labor market. But you guys also did a recent note on AI's maybe impact on inflation. What did you look at? What did you guys find out?
- [18:26]
Matt Lizardi
Yeah, so I think if you think back six, seven weeks ago, the entire conversation in markets was about how I was going to be disinflationary and was going to dispatch displaced labor, both of which was going to put downward pressure on inflation and on, on interest rates. Now obviously that's completely gone away from the discussions at the moment. But I think there's just this very strong conviction in markets that AI is this massive disinflationary force. One thing that we did is we actually just went out and asked various AI tools whether or not they think it is going to explain did the tools explode? They did not explain.
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Co-Host/Analyst
That's a good sign.
- [19:00]
Matt Lizardi
And you know people, they joke. Yeah, of course, if you ask Hal whether or not it's going to take your job, he's going to tell you no, but I'm sorry, I cannot answer.
- [19:08]
Host
You just got about 40 seconds.
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Matt Lizardi
Sure. But, but from the inflation perspective, I thought you found really interesting results. So AI is not at all convinced that over the near term it's going to be a disinflationary force. And it highlights, I think key factors. There's a big investment boom that's taking place. It can an upward pressure on energy prices. But if you look over the next five years it puts about an equal probability that AI is a significant disinflationary force to it lifting inflation. And again, it's kind of highlighting a lot of these supply chain issues and the investment demand part.
- [19:38]
Host
By the way, one of our favorite things, maybe it's just mine. Like, yeah, do you know who Tim Stanwick is? Do you know? We get all kinds of crazy answers.
- [19:47]
Co-Host/Analyst
We know who Matt was.
- [19:48]
Host
That we certainly do. Deutsche bank chief U.S. economist head of U.S. economic research stay with us.
- [19:54]
Co-Host/Analyst
More from Bloomberg Businessweek Daily coming up after this.
- [20:00]
Host
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Mike McKee
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Podcast Announcer
the Bloomberg Business Week Daily Podcast. Catch us live weekday afternoons from 2 to 5pm EAs listen on Apple CarPlay and Android Auto with the Bloomberg Business app or watch us live on YouTube.
- [22:37]
Host
All right folks watching markets, watching the headlines as we continue to see reports about the Iranian Parliament Speaker Golbach who would lead the country's negotiating team in talks with the US In Islamabad on Friday, according to the semi official Iranian students news agencies. But he is talking about some different concerns about the ceasefire. And again we had some headlines about the ceasefire being violated. We did see a little bit of the treasury rally fading, the equity rally fading, but just a hair. So I just want to put it in perspective. But again the Iranian Parliament speaker also posting a violation statement so the talks unreasonable. So again we're trying to make some sense out of all.
- [23:26]
Co-Host/Analyst
Yeah, I'm just going to this statement right now. Quote the deep historical distrust we hold toward the United States stems from its repeated violations of all forms of commitments, a pattern that has regrettably been repeated once again. The Pres. The the speaker saying non compliance with the first clause of the 10 point proposal regarding the ceasefire in Lebanon, a commitment that the Prime Minister has also explicitly referred to and declared as an immediate ceasefire everywhere, including Lebanon and other regions, effective immediately.
- [23:52]
Host
They also say the entree of an intruding drone into Iran airspace which was destroyed in the city of Lar in Forest Province in a clear violation of the clause prohibiting any further violation of Iran airspace. Denial of Iran's right to enrichment, which was included in the sixth clause of the framework. They say now the very workable basis on which to negotiate has been openly and clearly violated even before the negotiations began. In such a situation, a bilateral cease fire negotiation is unreasonable. We have said many times the devil is in the details. But curious to see what our next guest has to say.
- [24:27]
Co-Host/Analyst
Dr. Ed Hussein, a senior fellow at the Council on Foreign relations, focused on U.S. foreign policy toward the Middle east generally. He's a professor at the School of Foreign Service at Georgetown University where he teaches classes on global security, Arab Israeli peace and the shared intellectual roots of the west in Islam. Dr. Hussein joins us from Abu Dhabi. Dr. Hussein, just your reaction to the latest headlines and the fragile nature of this ceasefire.
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Dr. Ed Hussein
Fragile nature is exactly the right phrase. I woke up this morning here in Abu Dhabi with signal alerts going off on my phone. And then throughout the day, we've had attacks from Iran on Dubai. As late as 45 minutes ago, there were attacks, drone attacks, interceptions from Iran into Dubai. So here in the region, especially on this side of the Strait of Hormuz, it didn't feel like a day in which there haven't been violations. But there's been not much coverage of that. Now, the speaker of the Parliament calling this unreasonable, it doesn't seem like an outright rejection. My question to the audience and for all of us thinking people, is why does Iran care about Lebanon? And that's part of the problem, that Iran hasn't given up its imperial ambitions. That violation in Lebanon, which means Israel's counterterrorism measures, that wasn't a violation of Iranian sovereign space. And yet it still harbors these ambitions that it's trying to exert pressure on Lebanon and Israel's efforts there. So I think that's something for us to think about, that it's not just Iran's concerns about Iran. Iran still has these ambitions around the region, which was one of the reasons why October 7th happened three years ago. And this is downstream from that terror attack that Hamas instigated with Iranian government support that continues to ricochet around the region and the world.
- [26:19]
Host
I'm glad you went there, Dr. Hussein, because I think one of the things we're trying to figure out too, because Israel has continued its ambitions, right? It seems like in its attacks on Lebanon. So are you saying that, that Iran still has bigger ambitions by being concerned about that? And so I guess I think we were trying to say, well, Israel has to stop, so help us understand, you understand this region, the dynamics between all of these players and what their missions are and how it might not coincide with what the US's ambitions are, because I thought this was about the nuclear ambitions of Iran.
- [27:01]
Dr. Ed Hussein
Yes, I mean, you're absolutely right. The nuclear ambitions are linked to having an Iran that is surrounding Israel with proxies, which was previously the Syrian government, the Lebanese government led by Hezbollah, and in Yemen, there are Houthi attacks that are anti Israeli and supporting movements inside Saudi Arabia, inside Bahrain. So these are all movements outside of Iran. And now we have a situation that Iran is trying to negotiate control of the Straits of Hormuz, which it didn't have previously. Now, all of that, and you're right to ask the question about Israel plays to Israel's existential angst. Israel and Jewish people writ large, as we know, are a traumatized people coming out of the Holocaust. And October 7th, press that wound, which means we survived since the rise of the Iranian regime, the mullahs in Iran since 1979, by more or less trying to accept that the Iranians will have forces parked all around our borders and we'll try and do a peace deal. October 7th made the Israelis realize we can't have that world again. And we don't trust Iranian intentions. And they will support Hamas and Hezbollah attack our people again. Therefore, we'll go after them everywhere, including Iranian nuclear ambitions. And I'm afraid to say this, but it's the truth. And we can't shy away from the truth. For as long as Israel feels it's not safe, it will continue to attack Iran and its allies. And the biggest mistake Iran makes in response to this is rather than fight with Israel, it begins to attack countries such as where I'm sat here in the Arabian Peninsula in Abu Dhabi, Dubai, Kuwait, Bahrain, Saudi Arabia, Jordan. And I think that's the danger of the Iranian regime that it wants to more or less draw in the rest of the world in its war with Israel. And in that. And I think the good news is countries here now feel closer to America than they've done in the last 15 to 20 years. So there's a lot to play with in terms of enhancing US Influence and relationships with countries here in the Arabian Peninsula.
- [29:20]
Host
Just quickly to get your thoughts, though, isn't this about Israel's existentialist or existential angst versus Iran's existential angst? I'm just. I mean, is that what's kind of like, how do you got that going on? You tell me how you end that.
- [29:37]
Dr. Ed Hussein
No, it's a battle of different willpowers, different wills. And, I mean, the Israelis will have stronger willpower for all kinds of reasons. They have 3,000 years to back that. And the Iranians also have strong willpower and have 3,000 years to back that. The rest of us are caught up in that. And the way you end that is by making sure that Iran and the Iranian government, as it stands now, focuses on normalizing Iran's economy, as the Japanese did and the South Koreans did, rather than Iran's ambitions being regional and global and shouting every Friday, death to America, Death to Israel, and attacking Arab neighbors and allies who have not attacked Iran even to this day. They, we here are in a defensive posture. And the way you end that is by ensuring that Iran's government is not centralized, that Iran's government is decentralized, that there is an Iran that's an Iran of federations that minorities inside Iran, the Azeris, the Baluchis, the Arabs, the Haziris, the Persians, have greater rights.
- [30:38]
Co-Host/Analyst
Dr. Hussein, is that realistic? Is that realistic in your view? Could that actually happen after 47 years of rule from, you know, under the Ayatollah and Islamic Republic and an IRGC that is so powerful?
- [30:52]
Dr. Ed Hussein
It may not happen next month, it may not happen the month after. The US And Israeli attacks on Iran have consolidated the government's nationalist appeal for unity. But if we look at the Iranian population since the Green movement during President Obama's time to now, every two or three years, there's an uprising against this government. This government now is weaker than it's ever been before in terms of its air force, naval force, and ability to produce missiles. But, you know, one of the reasons why President Trump tried to support the popular uprising inside Iran was to, was to diminish the government's outreach. But the mistake is now the government is stronger domestically, but there will inevitably be uprisings inside Iran. And I think this government at some time will fall. And we in the west, with our Arabian allies need to have a perception of what a federalized Iran looks like where there isn't a centralized control by the irgc. And that's where I think all of us are failing. We just don't have an alternative vision for Iran without disrupting, without causing refugee flows, without causing further conflict that all of these minorities inside Iran, I mean, Azer is 25% of the country, close to Azerbaijan, Turkic population, the Kurdish population, huge inside Iran. How do we decentralize power with these minorities that are actually pro Israel, pro Arabs, pro America, rather than the mullah regime trying to take us back to a messianic world order that continues to support forces against Arabia as well as against America and Israel.
- [32:26]
Host
You know, our Dan Williams, who's in Jerusalem, had sent us and shared with us a post he did earlier this morning. He said when the all clear sound, when the all clear sounded after the last Iranian missile launch in the early hours of the morning and the ceasefire took hold, my neighbors filed out of the communal bomb shelter, smiling wearily and wishing one other well, quote, until we meet again in two weeks time. I mean, that's, you know, I don't know, the reality. Like you talk about this federalized Iran, what that might look like and having the ability or having the trouble kind of figuring that out. Is that because it's impossible? I've had conversations with folks about the region, informed people, and just saying, you know, this, it is existential there's something in the, you know, in the culture of Iran, you know, that they are preparing for. And so you can't just get rid of that overnight. So it makes me wonder, can there be a federalized Iran?
- [33:23]
Dr. Ed Hussein
We haven't made the argument. I've been thinking about a federalized Iran over the last two or three years and you look at the history, you start to see that Iran was always a federalized entity, but as in ethnically composed, different ethnic compositions of the country now want to have greater rights. And we haven't recognized that, for example, Azerbaijan and Azeris have a strong relationship. We haven't focused on that. We have ability from Turkey and our NATO ally to project power into Iran. That terrifies Iran because they have a long war with the Turks going back to the 1550s. It's another existential battle. But the point that you made is fundamentally true that Iran has this long willpower to fight the Iranians or the Persians rather famously fought the Romans for 700 years. You know, from 7 AD onwards. They have a long strategic vision. We on our side, our Arabian American and our Israeli allies haven't really cast a long range vision back into Iran that we don't want to see an Islamist regime that threatens both Arabs and Jews and Americans both in the region and around the world. And I think that's a task for all of us to see an Iran that's different, that is decentralized and it's not about the Raza Shah Pahlavi coming into power or his family, but genuinely bottom upwards representing the rights of the people.
- [34:48]
Host
Dr. Hussein, thank you so much. Be well, be safe. So appreciate your time. Take care. This is Bloomberg.
- [34:55]
Analyst/Commentator
Stay with us.
- [34:56]
Co-Host/Analyst
More from Bloomberg Businessweek Daily coming up after this.
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- [37:30]
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- [37:44]
Host
Well, thank you Harry. Thank you Hulu. Thank you Ethics. Thank you Love Story. More we want to talk about Levi Strauss and Gabby Company's latest results really knocking the socks off investors. The stock is up the most in one year as the company raised its projections for the year after reporting better than expected quarterly results. They cited strong demand in all regions as a denim brand steer shoppers to its own stores and website. We're going to talk about that a lot. Company reporting revenues of 1.7 billion in the fiscal quarter that exceeded the average of analyst estimates earnings per share. Also excluding some items surpassing expectations, the stock now up about 7% year to date and has gained nearly 80% in the past 12 months. Yep, for those watching right now it is up more than 11%. Tim, in today's session with us is
- [38:27]
Co-Host/Analyst
the President, CEO of Levi Strauss and Co. She's also a member of the company's board. She's former CEO of Kohl's. She spent close to 17 years too, at Starbucks. We got Michelle Goss here in the studio. Welcome. It's good. It's good to see you. The stock soaring. Investors are liking what they see. Where did the momentum come from and what's really working right now?
- [38:46]
Michelle Goss
Yeah, well, first, thanks for. Thanks for having me. And I'm really excited to talk about how we started the year. You know, we are seeing momentum across the board, which is around our strategies really picking up and accelerating. So we delivered 9% organic growth, 14% on a reported basis. We are seeing this across geographies. We're seeing this across categories, we're seeing it across genders. Why across channels?
- [39:09]
Host
Why is this happening?
- [39:10]
Michelle Goss
Well, you know, it's the brand, it's the product, and it's the execution, and all of those things are working. And I gotta tell you, the team is doing a phenomenal job. We're coming off of a solid year last year, and it's accelerating right into 2026.
- [39:26]
Host
Michelle. Denim, though, is such a crowded category. Like, I won't go to certain department stores or. Because it's just too much for me. But I do go to Levi's, and
- [39:34]
Michelle Goss
I thank you for that.
- [39:35]
Matt Lizardi
You're welcome.
- [39:35]
Host
You're welcome. And I said to you, coming in, my 23 year old, she's wearing them. That's where she wants to go. You talked about your wife. Like you are hitting a lot of different demographics. How do you do that? How do you appeal to so many?
- [39:48]
Michelle Goss
Yeah, well, I would say it does start with the brand. And we like to say that Levi's operates at the center of culture. Culture. And we're hitting a new stride with the brand. I mean, the brand has been strong for a long time. Last year it went up a notch. We had this fantastic partnership with Beyonce that moved into a partnership with Shibuzzi. And this year we launched our brand campaign at the Super Bowl. And it was the perfect time because Levi's Stadium was hosting the super bowl. And we hadn't been on the super bowl in over 20 years. But it wasn't about long launching an ad for the Super Bowl. It was about launching our campaign, and we call it Behind Every Original, which is a global campaign and leans into what Levi's does best across sports, across fashion and music. And so if you've seen the ad, it really does bring that to life and has artists like Doshi or SGA basketball. Great. And Rosie and I like to talk about Rosie. Rosie because here is this. She was part of Blackpink, 90 million followers and growing. And we're rolling that right into a collaboration with her in Asia. So that is, that is taking off as we speak. And so this is about launching, like I said, a campaign for the year. Looking ahead, we've got World cup coming up that the stadium is Levi's stadium is hosting. We have collaborations. You know, we had our collaboration with Nike and Jordan a couple months ago. We had people lining out the doors to get the special collab.
- [41:16]
Co-Host/Analyst
Michelle, when you talk about these partnerships with celebrities, with the artists, I know each one of them is different, but in general, are they coming to you or are you identifying them and you're going to them? How organic is it?
- [41:27]
Michelle Goss
It's all of the above. Well, so. And it happens organically. I mean literally, what just at the Brits, we had Harry Styles dancers all wearing 501. I mean this is about being at the center of culture. And the Beyonce partnership that started because she wrote a song called Levi's Jeans. But we've been friends with Beyonce for decades. Back in back to the 90s or Carolyn Bessette wore the 517s, you know, in Love Story, it's heavily featured and sales are up like 25%.
- [41:58]
Host
Did that surprise you? Like, and when did you first all of a sudden notice, like we've talked about this on air, the impact of this?
- [42:04]
Michelle Goss
Yeah, well, the 90s. We've known about the 90s trend for a long time. And in fact, when you go into our stores online, go into our wholesale partners, I mean that 90s trend is Levi's is all over it from top to bottom. I mean one of the things we talk about when you ask about what's working, we talk about our two key strategies which is about becoming a more DTC forward company and also evolving the brand from being about jeans to head to toe. We say denim lifestyle. What does that mean? It means that we want to give you the whole wardrobe. It starts with the jeans, but tops, button downs, jackets, outerwear, dresses, all through the lens of Levi's. But we're playing now in the total apparel space.
- [42:45]
Host
Michelle, hang on for a second. Forgive us. This is the world we live in. You live in it too. We all do. We do have some headlines crossing the Bloomberg terminal. This is coming involving the war, US war with Iran. Iranian parliament speaker posting a violation statement Saying that the ceasefire deal with the United States has been violated. So again, this is just crossing the Bloomberg terminal and let me just take a quick check on the market trade. We are seeing stocks just dip a little bit lower on that. But we're still seeing quite a rally across the board. And a quick check on what we're seeing in terms of yields. They too are just ticking up a little bit, just a hair. So we're going to need a little bit of clarification. But folks, this is the world we live in. And this is what we said that even with the headlines last night into this morning, that the details are going to be really, really crucial. Emerging market currencies index trimming gains as Iran says the cease fire violates. So forgive us, that's our environment.
- [43:44]
Co-Host/Analyst
We're speaking with Michelle Goss, the CEO of Levi Strauss. Michelle, perhaps it's a good segue to talk about the macroeconomic environment and potential disruptions or disruptions you've seen from higher transportation costs as a result of bringing these products from overseas into the US and indeed around the world. What has this macroeconomic backdrop over the last five, six weeks done for your business?
- [44:04]
Host
Yeah, well, over the last year, when
- [44:06]
Michelle Goss
I think about tariffs, it's been a really uncertain time. You know, I take a step back. You think about the company LS&CO. We've been around for 170 years. We've weathered lots of storms and navigate and it goes back to who we are as a brand. During times like this, people do, we have to deliver, we have to execute. But they really do go to brands that they trust, that they love. We offer quality, we offer great value, we offer durability. To date, our consumer has proven resilient. I mean, you see that in our numbers. You know, we are bringing them a lot of innovation. I think, you know, if pressures come on the consumer, when that, when the, when, when the wallets get tighter, we have to up our game, right? Wallets get tighter, we have to work harder and that's what we're doing. We offer great red tab right down the middle. We offer signature by Levi Strauss, which is an awesome value. That business was up 16%. It's in the twenty, twenty five dollar range. And then we offer blue tab premium Japanese denim and you can buy a pair of jeans from Levi's now at like $200. So we're serving every customer need. But know that we are constantly just making sure that we can address the needs of the consumer in the moment, whatever that moment might be.
- [45:16]
Host
Love Talking fashion, love talking the collaborations. I also, though, do love the nitty gritty of, like, supply chains. And what a company like you that has been around for so long and seen a lot of different market cycles. What is your supply chain? And have you kind of spread it around based on what we've seen, not just in the last year, but even if coming off the pandemic, that reminded us that supply chains can be impacted dramatically when they're focused in one area.
- [45:39]
Michelle Goss
Yeah, that's right. We have a robust, very diversified supply chain across many, many countries. We have a really strong team that is agile and responsive and so, and these, these relationships with our suppliers go back decades and decades. So we have tremendous partnerships. And as we've navigated things, things like tariffs, everybody has stepped up to help us, you know, determine what the next steps are there. You know, just to, just to put it out there on tariffs. I mean, everything that we've guided the street includes tariff assumptions on, call it the original reciprocal tariffs at a higher rate, at that 20% incremental rate. You know, there's been recent news of it going down back to 10%. We haven't baked that into our numbers yet. One can say there's upside there.
- [46:24]
Matt Lizardi
Yeah.
- [46:25]
Michelle Goss
Could mean up to $35 million in EBIT or $0.07 of EPS. But we've held back just knowing that there still is uncertainty out there. As you were, as you were saying,
- [46:34]
Co-Host/Analyst
one question we asked outgoing CFO Harmeet Singh in the last year in the wake of tariffs has been about moving production to the United States. He said, no way. That's not happening. Are you sticking by that?
- [46:43]
Michelle Goss
We are sticking by that. Yeah. That is an industry that really has shifted overseas. And like I said, because we have these enduring, long lasting relationships, I know we'll be able to navigate whatever's ahead on that front.
- [46:55]
Host
All right, so, you know, a company like you guys, our whole Bloomberg team is like, ask Michelle. This is. But we're curious about your prospects for reaching 10 billion in revenue. Five years, seven years. How are you guys thinking?
- [47:07]
Michelle Goss
We have, we have not put a number out there, but date out there
- [47:11]
Host
and like, do you feel like you can take this momentum and how far can you carry it out? Do you feel comfortable?
- [47:16]
Michelle Goss
Yeah, what I, what I can say. And we have, I think it's important to have bold goals. Right. So put the 10 billion. We've put the 15% EBIT. I think if you look at the progress over the last couple of years, take revenue. We came off of 7% growth last year. That was up from the prior year. This year we're again guiding mid single digits. We just had a blowout quarter at up 9%. So I think it's safe to say that you can count on consistent sustainable growth and then on EBITDA, on profitability, we're making that march to 15% again. A few years ago we were 9, 10%. Last year about 11 and a half. We put them, we just said we're taking our guide up yesterday to 12%. So you see that sequential progress and you know, five years keep doing that. We'll let you guys do the math. But, but we're, but we're confident. I mean, like I said, the exciting thing, we are like you have visibility, the strategies are working. We've made some choices the last couple years. We've, you know, we sold the Dockers brand so that we could really focus on the Levi's brand. And there's so much opportunity.
- [48:14]
Co-Host/Analyst
So certainly fashion is working in your favor right now. But we know the industry is fickle and consumers are fickle. What happens or what do you do rather to make sure that when the trends do change, you move with them?
- [48:26]
Michelle Goss
Yeah, well, as the category leader in denim, let's start there. It's our responsibility to fuel the trends. You know, the denim category is growing, it's accelerating.
- [48:34]
Host
I have more denim in my. No serious. But nowadays and my, in my wardrobe that I haven't in a long, long time. And I.
- [48:41]
Co-Host/Analyst
But it's not always like that.
- [48:42]
Michelle Goss
But, but I would say though, but this, but this evolution to denim lifestyle or I'll say lifestyle head to toe, that's not all denim.
- [48:51]
Mike McKee
Right?
- [48:51]
Michelle Goss
It is fine if you're buying a rib cage, wide leg, pair of jeans, what's the perfect top that goes with it, which is going to be different than a low rise. Right. And so now that we're playing in this broader space space which basically increases our addressable market by 15x, we're playing in a 1 trillion market in apparel that requires focus and discipline. But we really up leveled our capabilities to do that. And you know, if you just take this last quarter our tops business was up 13%. It's only 20% of our business. So when you think about all that upside. So we now and 40% of our business is non denim. So yeah, that's not just denim anymore for Levi's.
- [49:31]
Host
So what is the biggest opportunity or categories that are not yet tapped that could be big for you guys?
- [49:36]
Michelle Goss
Yeah, I would say a couple things. First, when we think about gender, women's is not quite 40% of our business. Last I checked, women's has a big play in the apparel market.
- [49:46]
Host
My closet's a lot bigger than my just saying.
- [49:50]
Michelle Goss
But so there's still that should be at least half our business. So we're expecting tremendous growth there. I was just talking about head to toe. We always will be the leader in bottoms and denim bottoms, but tops. So in our business we sell two bottoms to every top, which by the way, that used to be like five bottoms to every top. That should be the other way around. Minimally one to one. That is all white space for us. And then we have amazing growth ahead of us in expansion. You know, there's still room to grow in the US but you think about these international markets. In some cases we're just getting started there. So as we look ahead and say how are we going to go from 6 point something to 10 billion? We can chart that out. We feel very confident.
- [50:31]
Host
Thank you. Thank you. Forgive our distraction. We were dealing with some headlines on the Middle east, which is obviously so important to everybody's macro. But please come back soon. We would love you.
- [50:40]
Michelle Goss
Well, thanks for having me.
- [50:41]
Host
Yeah, we loved it. President CEO of Levo Levi Strauss Co. Of course she is Michelle Goss joining us here in studio.
- [50:48]
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