Markets ended a volatile week higher as Middle East events swung from concerning to hopeful, and investors continued to fret about AI stocks while at the same time looking forward to the IPOs of some of the largest private AI-related companies.
In the Middle East, conditions deteriorated at the start of the week after Iran downed a US military helicopter, provoking a new round of US airstrikes and threats that the US might seize Kharg Island, a critical cog in Iran’s energy infrastructure. However, the US quickly backed away from the threat, with President Trump announcing that Iran had approved “discussions and final points” regarding a peace deal. Though the statement lacked specificity, it suggested the two sides were continuing to seek a longer-term peace deal.
On Sunday afternoon, a deal was finally announced. Though full details have not emerged, the US has agreed to end its blockade of Iranian ports while Iran has agreed to reopen the Strait of Hormuz. Early indications are that key issues such as Iran’s nuclear program will be addressed at a later date. The reopening of the Strait should help to lower energy prices and, by extension, broader inflationary pressures experienced over the past two months.
Looking ahead to this upcoming week, all eyes will be on the Fed as Kevin Warsh oversees his first FOMC meeting as Fed Chair. In his earlier years, Warsh was viewed as a fiscal hawk, supportive of the Fed maintaining higher interest rates to keep inflation under control. More recently, Warsh has shifted his tone, becoming open to the idea of the Fed lowering rates to support economic growth. In doing so, he has argued that new AI technologies could lead to higher productivity without triggering higher inflation.
Now that he is Chair, investors will be keen to hear Warsh’s thoughts on monetary policy, inflation, and the Fed’s balance sheet.
