Strategist: Here's why the Fed could still pull off a 'soft landing'

New York (CNN)Gary Friedman, the CEO of luxury home goods retailer RH, is often a colorful speaker who doesn’t mince words. That was on full display during the company’s earnings call Thursday night as he bemoaned New York City breakfasts, dunked on industry rivals and declared that anyone who thinks the United States isn’t in a recession is “crazy.”

While the mood was mostly upbeat — RH earnings for the second quarter beat expectations, and Friedman seemed pumped to join the call from RH Guesthouse, the company’s brand new, ultra-luxury hotel in Manhattan’s Meatpacking District — Friedman warned that third-quarter revenue could fall as much as 18% as the Fed raises interest rates. That compares with 19% growth in the third quarter last year.
“I think the Fed finally really understands what they have to do. And it’s not going to be pretty when interest rates go up the way they are,” Friedman said.

    RH (RH) shares initially slumped 1% on the grim outlook, but were up more than 5% Friday.

      Luxury brands tend to weather economic slowdowns better because they cater to wealthy people who are less deterred by higher borrowing costs. The Federal Reserve is widely expected to raise its key interest rate by three-quarters of a percentage point — its third jumbo hike since June — later this month as it tries to tame inflation.

      That’s why you haven’t seen, and likely will not see, heavy discounts or red-line Labor Day sales at RH, even if that means losing market share to competitors like West Elm or Wayfair.
      “While everybody is, like, running around, trying to pick up the apples on the ground, we figured out how to build an apple-harvesting company,” he said. “It’s just a different game we’re playing.”

        RH, formerly Restoration Hardware, has a market cap of more than $6.2 billion, and has made a hard pivot as a luxury lifestyle brand, with an emphasis on hospitality. RH Guesthouse, the company’s new hotel, is certainly among the most expensive in city. There’s no online booking, no photographs allowed, and no lobby. Also no pets or children. Rooms start at $3,500 a night and suites start at $7,500 a night. The restaurant in the space will be RH’s 15th.
        That’s where, according to Friedman, guests can find a good breakfast — something that he claims, rather controversially, is lacking in fair Gotham. “You usually can’t find good breakfast in this town. At least that’s what I believe,” he said on Thursday’s earnings call.
        The hotel — its website takes issue with that word, prominently declaring “this is not a hotel” but rather “our house” — is so exclusive Friedman even refused to let images of the rooms appear in print. For a Wall Street Journal preview, the CEO agreed only to a photo of himself reclining in one of the room’s giant bathtubs.
        Friedman appears confident in his long-term strategy, saying the company is well-prepared to ride out the next year of economic turmoil.
        “We’ve been through storms before … We’ve been through the Great Recession before,” he said. “A lot of other people are going to stumble and fall.”

          And while economists are divided over whether the US is in a recession or not — officially, recessions are determined by a group of economists at the National Bureau of Economic Research — Friedman believes the downturn is already well under way.
          “Anybody who thinks we’re not in a recession is crazy,” Friedman told analysts. “The housing market is in a recession, and it’s just getting started. So it’s probably going to be a difficult 12 to 18 months in our industry. But these are the times where you can really capitalize.”
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