Bloomberg Surveillance Sep 17, 2026 20m 10m saved
With Julian Emanuel, equity strategist at Evercore · Bill Dudley, former President of the Federal Reserve Bank of New York · Ed Yardeni, founder of Yardeni Research
The morning after the Federal Reserve's first rate increase in about three years, federal funds futures were pricing three or four more over the next six to nine months, and Bill Dudley said the case for the next one is as clear as the case for the one just delivered.
The bond market spent the session deleting its two extreme scenarios rather than choosing between them. Julian Emanuel said Kevin Warsh cleared out the investors betting on a single hike, and the same press conference cleared out the clients asking about a 6% or 7% 10-year yield.
"So coming into yesterday, there was a very solid one-and-done crowd. And that was completely taken off the table by Chair Warsh."
Bloomberg Surveillance ran three guests through the same decision. Emanuel publishes an S&P 500 price target at Evercore and spent his segment arguing that an equity investor should be buying long-dated Treasuries. Dudley ran the New York Fed and had written that a 25 basis point hike is too small to change economic activity. Ed Yardeni, founder of Yardeni Research, had just pushed back the date on Wall Street's highest index target.
The full episode is covered here so you can skip it. 20 minutes of audio, 10 minutes of reading.
Here are the 11 takeaways that matter.
Key Takeaways
The hike removed both tails at once: the one-and-done trade and the 6% to 7% 10-year trade
Emanuel's reason for owning long bonds is corporate, not macro — easier hyperscaler debt issuance
His threat map runs $100 oil into yields into hyperscaler debt, with credit markets calm so far
Futures price three or four more hikes over the next six to nine months, by Dudley's reading
Dudley calls the Fed's own forecast immaculate disinflation: no slowdown, no unemployment, inflation back at 2% anyway
AI capital spending has raised the neutral rate, and Dudley says the Fed has to take that on board He also says AI spending barely responds to rates at all
The reason to hike anyway is credibility above the 2% target, not demand destruction
Diesel is the transmission channel into core inflation through airfares, food and trucking
Yardeni pushed his 8,400 S&P target to the middle of next year and kept 7,900 for year-end
A 50 basis-point surprise from the Bank of Japan would accelerate the carry-trade unwind
1. Both Tails Removed
Emanuel's written view going in was that stocks stay volatile once the Fed starts hiking even when the hike is expected. Asked whether that means a volatile market that still ends the year higher, he said yes, with a price target only modestly above current levels and no runaway upside.
What he thought the two sessions actually accomplished was the removal of two positions at once.
"And by doing that and establishing that, you've taken the other side of the equation off, where we were getting clients talking about 6% and 7% in the 10-year yield — not happening." — Julian Emanuel
The first casualty was the crowd betting the Fed would stop after one move. The second was the crowd pricing a far higher long-term yield, killed by the confirmation that the 2% inflation goal is real.
2. Bonds Help Hyperscalers
Asked whether he therefore likes long-dated Treasuries, Emanuel said he does, and framed it as buying the Fed's message rather than fading it.
"And I think the fact that you are being true to trying to fight inflation here, buy the hike, buy the message that there's likely more to come, it provides a value opportunity in the long end." — Julian Emanuel
The second anchor asked whether he was buying in size himself. He answered as an allocator: a global investor looking at stocks against bonds this year probably should rebalance. When the lead anchor pointed out that an equity strategist recommending bonds is unusual, Emanuel gave the reason the call matters to stockholders.
"This call is more important than it's been in years, because the fact is the bond market is more important for the global capital cycle than it's been in years." — Julian Emanuel
"If you're taking pressure off the long end in Treasuries, you are taking pressure off the long end in sovereigns. And ultimately, what you're doing is making issuance for the hyperscalers incrementally easier." — Julian Emanuel
Asked to confirm that this is therefore good for equities, he said absolutely, twice.
3. $100 Oil Into Credit
Stocks were up 0.8% that morning and had held up through moves in both directions in fixed income, so the anchor asked what could actually break the pattern. Emanuel named a chain rather than an event.
"Well, again, in our mind, it's this transmission mechanism from $100 oil to yields, to hyperscaler debt issuance." — Julian Emanuel
He said credit is the market to watch and that it has been calm, with some volatility around individual issuance announcements but otherwise placid and liquid. He added that the last quarter was the peak rate of earnings growth, that the rest of this year and 2027 still look strong, and that the AI safety story feeds into the same picture.
4. Slower Issuance Helps AI
The second anchor raised the banks, which had sold off after the decision. Her reading was that hiking to this degree keeps debt issuers, equity issuers and potential IPOs on the sidelines, and that the extra volatility could cut into capital markets activity. She asked whether that is a likely result of the cycle.
Emanuel agreed it could happen and said it would help.
"You could get some temperance in issuing, and that probably wouldn't be a bad thing, because when you think about the entirety of the cycle, what you've had over the last year and a half or so, with regard to AI, is a mismatch between the investment funds being thrown at the story and the ROI and the adoption." — Julian Emanuel
Slower issuance, in his account, gives the money going in and the returns coming out a chance to meet.
5. Immaculate Disinflation
Dudley had written before the meeting that the case for a hike was clear. Asked whether the case for the next one is equally clear, he said yes, barring a dramatic change in the data, and gave three reasons: Warsh has said he needs financial conditions to be less accommodative and probably restrictive, markets suggest he has not achieved that yet, and the language about removing a dose of accommodation implies further doses.
He then turned on the Fed's own projections.
"What's interesting about the Fed's forecast is it's sort of the immaculate disinflation. If you look at the summary of economic projections, growth doesn't slow, unemployment rate doesn't rise, yet inflation magically sinks back to 2%." — Bill Dudley
His view is that it will be harder than that. Asked how much demand destruction is required and at what level of rates, he said it depends on how markets respond.
"So if the stock market ignores the Fed's tightening, if the bond market ignores the Fed's tightening, then there's more for the Fed to do." — Bill Dudley
6. Warsh Was Still Guarded
Asked to grade the press conference, Dudley gave partial credit.
"I think he did a much better job, but he was still very, very guarded. No follow-up questions. The answers were very short." — Bill Dudley
The specific omission that bothered him was the neutral rate. Warsh did not say where he thinks it is, and Dudley called it an odd position for a central banker to hold, because without it there is no way to state whether policy today is easy, neutral or tight.
7. AI Capex Lifts Neutral
Pressed on whether neutral has actually moved higher, or whether the reference to removing accommodation was just a comment on last year's 75 basis points of cuts, Dudley said it has moved.
"It's higher because we have this huge AI investment spending boom that's pushing up the neutral rate." — Bill Dudley
The mechanism is demand for capital. While hundreds of billions of dollars go into data centers and the chips inside them, the neutral rate stays higher and the Fed has to account for it. If the investment boom ends, he said, neutral probably falls back.
8. Why Hike At All?
The lead anchor recalled a conversation with Dudley and Mohamed El-Erian around 2021, when Dudley said the Fed might have to go to 5% and rates were still near zero. It did, and further, without the pain the chair at the time had warned about. What, the anchor asked, lets this economy absorb these rates?
Dudley credited financial conditions, particularly stock-market wealth gains supporting the spending of people who own equities, which he noted does nothing for those at the lower end of the income distribution. He also called the AI boom an outside force pushing the economy along, and said it barely responds to policy.
"I don't think if the Fed hikes 25 or 50 or 100, it's really going to have much to change the trajectory of AI investment spending." — Bill Dudley
Asked why hike at all if the biggest driver is unreachable, he gave the credibility answer.
"Because you can't let inflation get ingrained above 2%." — Bill Dudley
He said the Fed has got away with something over recent years: inflation above target by a meaningful amount for five years, with the public still believing it will come back to 2%. That cannot be stretched indefinitely while the economy performs, the labor market is in balance and the risks all sit on the inflation side.
9. Diesel Into Core
Asked whether rate hikes would even be under discussion if oil were not where it is, Dudley said possibly not, and pointed at the refined product rather than the crude.
"But I think the increase in diesel prices is really important, because it's going to affect things like airfare." — Bill Dudley
His argument is that diesel is a transportation input, so any good or service trucked around the United States carries the cost. That puts it beyond the headline inflation rate and into core.
10. Yardeni Cuts the Date
Yardeni came on having cut his year-end S&P 500 target to 7,900 from 8,400, with the odds he assigns to a bearish outcome raised to 30% from 20%. What changed, he said, is the calendar rather than the level.
"I don't think it's likely to happen by the end of the year now. I think it's more likely to happen by the middle of next year." — Ed Yardeni
He blamed geopolitics: an escalating war in the Middle East and oil back at 100 after a drop to about 80, which raises the odds that energy inflation reaches core prices. He credited that specific point to the Dudley interview the show had just run. On the Fed he said this is not a one-and-done situation and expects another one or two increases this year.
On the equity side he said earnings look great and the economy is doing great, and that the problem is the multiple, because investors have grown shy about paying for that earnings outlook. He added that the AI story has become more questionable and is being pushed out, which matters because AI stocks carry high multiples.
11. The Yen Carry Trade
Yardeni's third concern was Japan. He said the coordinated rise in bond yields nearly everywhere except China is the visible trace of hedge funds unwinding positions they financed in yen at close to zero, converted into other currencies and invested in government bonds and other assets worldwide. He said that unwind may not be over.
The next Bank of Japan decision is the variable he is watching.
"If they only do a quarter, then I think maybe that will keep the carry trade from unwinding faster. But if they go and surprise and do 50, that might be more of a shock." — Ed Yardeni
Asked to confirm that a more hawkish Bank of Japan means a more vulnerable global bond market, he said yes, and noted that Treasury Secretary Scott Bessent is pushing Japan to move faster, which strengthens the yen and accelerates the unwind. He would not buy a long-dated bond immediately ahead of the decision, though he said a 10-year at 5% will turn out to be a good return on a six- to 12-month view.
Bonus Insights
Emanuel and Dudley reach opposite conclusions from the same observation. Both say the AI capital cycle is the dominant force in this economy. Emanuel wants long-end yields lower so hyperscalers can fund it; Dudley says that same spending is what has raised the neutral rate and forced the Fed's hand.
The lead anchor's reaction to an equity strategist recommending bonds — that it is terrifying — was the moment the segment turned, and the second anchor immediately read it as Emanuel declining to say outright what he meant.
Dudley's account of the last cycle carries a warning about this one: the Fed went to 5% when that sounded impossible, and the pain the chair had promised never arrived.
Across three guests the episode lands on one position: the Fed is not finished, the constraint is oil rather than labor, and the market that decides what happens next is the long end rather than the stock market.
Products, Companies & Tools Mentioned
Evercore (Emanuel's firm; its price target sits modestly above the current index level)
Federal Reserve (The first hike in about three years, with the summary of economic projections Dudley calls immaculate disinflation)
Federal Reserve Bank of New York (Dudley's former employer, and the source of his standing on how policy reaches the economy)
Bank of Japan (A quarter-point move slows the carry-trade unwind; 50 basis points would be a shock, in Yardeni's account)
Yardeni Research (Yardeni's firm, whose year-end S&P 500 target moved to 7,900 from a Street-high 8,400)
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