Bloomberg Surveillance• Apr 29, 2026• 28:16

Fed Decision and Price Pressures | Bloomberg Surveillance

From Bloomberg Surveillance

Bloomberg Surveillance

Executive Summary

The ongoing war in the Middle East is unlikely to cause a US recession but poses a significant stagflationary risk, characterized by slower growth and persistent inflation.
China's central bank is actively buying gold as part of a long-term de-dollarization strategy, seeking to diversify reserves and hedge against geopolitical fragmentation and potential US sanctions.
US domestic politics will be tested by an upcoming vote on the War Powers Act and a $200 billion supplemental funding request to restock munitions, revealing political divisions over the conflict.
Economists advocate for long-term pro-growth policies in the US, including increased research spending, high-skilled immigration, and investment in AI and energy infrastructure, to combat economic malaise.

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Concerns Raised

A stagflationary environment of slow growth and sticky inflation.
Iran's chokehold on the Strait of Hormuz creating catastrophic risk for the global economy.
Geopolitical fragmentation driving de-dollarization and financial instability.
Depletion of US munitions stockpiles requiring a large, politically contentious funding bill.

Opportunities Identified

Gold as a strategic hedge against de-dollarization and geopolitical risk, driven by central bank demand.
The US economy's reduced energy intensity provides resilience against energy shocks compared to previous crises.
Potential for long-term US growth through targeted policies in research, immigration, and technology.

Key Themes

Geopolitical Conflict and Economic Stagflation

The war in the Middle East is the primary driver of economic uncertainty. Experts believe the most probable outcome for the US economy is not a recession, but a period of slower growth combined with inflation remaining uncomfortably high, complicating the Federal Reserve's policy path.

This stagflationary pressure limits the Fed's ability to cut rates and forces businesses and investors to navigate an environment of rising costs and slowing demand.

China's De-Dollarization and Gold Strategy

The People's Bank of China is aggressively accumulating gold reserves, a trend that accelerated amidst geopolitical tensions. This is a deliberate, long-term strategy to reduce reliance on the US dollar, diversify national reserves, and insulate its economy from potential sanctions.

This trend challenges the long-term dominance of the US dollar as the global reserve currency and has significant implications for global financial stability and the value of gold as a strategic asset.

US Domestic Political Headwinds

The conflict in Iran is creating significant domestic political challenges for the administration. Congress faces a mandatory vote on the conflict under the War Powers Act and must also consider a $200 billion supplemental budget request, both of which will serve as referendums on the war and expose deep political divisions.

The outcomes of these congressional votes will determine the sustainability of the US military engagement and signal the level of political risk and policy uncertainty for markets.

Iranian Regime Resilience and Strategy

Iran's hardliner-dominated government is prepared to withstand significant economic pain from blockades and sanctions to maintain its chokehold on the Strait of Hormuz and its nuclear infrastructure. The regime's entire economy is structured around evading US pressure, making a quick diplomatic resolution unlikely.

The regime's intransigence signals a prolonged period of risk for global energy markets and supply chains, as the threat of disruption in the Strait of Hormuz will persist.

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Topics

Geopolitics Middle East Conflict Iran Strait of Hormuz US Foreign Policy War Powers Act US Congress Supplemental Budget De-dollarization Gold People's Bank of China (PBOC)Federal Reserve Monetary Policy Inflation Economic Growth

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