Episode summary
Bloomberg Surveillance TV: May 26th, 2026 (Podcast) | Bloomberg Surveillance
Bloomberg Surveillance
· · 19 min · Hosts: Tom Keene, Paul Sweeney, Lisa Mateo, Michael Barr · Guests: Steven Cook, William Dudley, Sonal Desai
Summary
The discussion centered on whether the Federal Reserve is really restrictive enough to curb inflation, with the guest arguing the economy’s strength, full employment, and persistent growth suggest policy is still not biting hard. He said the case for cutting rates is very weak, and warned that tax refunds, easy financial conditions, and rising inflation expectations could keep the Fed from getting back to 2% anytime soon. He also argued that real rates may be structurally higher because of AI-driven investment demand and the U.S. fiscal path.
On the Middle East, the guest said a U.S.-Iran deal remains far apart because Tehran is unlikely to give up its right to enrich uranium or its leverage around the Strait of Hormuz. He argued that both sides are under pressure, but that the Iranians are willing to absorb pain and the U.S. is trying to avoid a broader escalation while selling any agreement as part of a wider diplomatic win.
Sonal Desai said the oil shock has made rate cuts untenable and that 4% headline inflation is likely this year, with rate hikes becoming a possibility if inflation moves closer to 5%. She argued the neutral rate is closer to 4 than 3, that policy has already been too dovish, and that long-term yields should drift higher rather than lower. She also said the next Fed chair should move toward a more orthodox framework and eventually shrink the balance sheet, but not in a way that triggers immediate market stress.
Key takeaways
- The guest said the economy’s continued growth and full employment are evidence that policy has not been restrictive enough to justify near-term rate cuts.
- The guest warned that inflation expectations are becoming less anchored as the Fed struggles to get back to 2% after more than five years above target.
- Steven Cook said Iran is unlikely to abandon uranium enrichment or its leverage over the Strait of Hormuz, keeping a U.S.-Iran deal out of reach.
- Sonal Desai said oil-driven headline inflation could hit 4% this year and even create conditions for rate hikes if it moves toward 5%.
- Desai argued the neutral rate is closer to 4% than 3%, implying long-end yields should trend higher over time.
Notable quotes
“I just think you have to look at the economy's performance over the last few years”
“there is a risk that inflation expectations do finally become unanchored”
“the Iranians have remained firm that they have a right to enrich uranium”
“rate hikes are on the table in a in certain circumstances”
How the episode opens
Bloomberg Audio Studios podcasts radio news. This is the Bloomberg Surveillance Podcast. I'm Jonathan Pharaoh along with Lisa Abramitz and Amarie Hordern.
Join us each day for insight from the best in markets, economics, and geopolitics. From our global headquarters in New York City, we are live on Bloomberg television weekday mornings from 6:00 to 9:00 a.m. Eastern.
Subscribe to the podcast on Apple, Spotify, or anywhere else you listen. And as always, on the Bloomberg terminal, and the Bloomberg Business app. So, here's the latest this morning.
Fed chair Kevin Walsh preparing for his first week leading the central bank as investors pricing higher for longer rates. The former New York Fed President Bill Dudley writing, "The prevailing wisdom is that the Fed will tighten monetary policy later this year. Bill joins us now for more.
Bill, welcome to the program. I enjoyed the piece. I just want to get to one important line in there.
whether it's credible for this Federal Reserve to say the monetary policy is indeed still restrictive. Bill, what's your take on that?
I just think you have to look at the economy's performance over the last few years. We've been at this level of interest rates or higher since November of I think 2022 and yet the economy is continuing to grow. We're still at full employment.
So where's the evidence that monetary policy has actually been restrictive? If it had been restrictive, the economy should have slowed down. The unemployment rate should have risen.
So I think the case for cutting rates now is actually very very weak.
Given that uh Bill, there's a real question here about the housing disinflation that people point to as well as uh we haven't seen wage inflation accelerate. In fact, you've seen it decelerate.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- global markets
- fixed income
- middle east and africa
- economy outlook
- federal reserve policy
Companies and tickers mentioned
- BEN
- Franklin Templeton
- Council on Foreign Relations
Watch the episode
Watch “Bloomberg Surveillance TV: May 26th, 2026 (Podcast) | Bloomberg Surveillance” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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