New York Federal Reserve President John Williams projected inflation to reach 2.75% by 2026. He acknowledged that the ongoing Middle East conflict is contributing to the increase in headline inflation, but expects underlying inflation to ease by the end of this year. Williams also lowered his economic growth target to a range of 2%-2.5% for 2026.
In equity markets, Wall Street's main indexes opened lower on Tuesday due to geopolitical tensions between the United States and Iran. Investors are closely watching the deadline set by President Donald Trump for the reopening of the Strait of Hormuz. The uncertainty has weighed on investor sentiment, which had previously hoped for a resolution to the conflict in the near future.
Reports of a US strike on a military target on Kharg Island, Iran's main oil hub, have heightened energy market concerns, although no oil infrastructure has been reported to be affected so far. Iran responded by threatening to attack the infrastructure of neighboring countries in the Gulf region. This has put traders on alert for potential global supply disruptions.
In terms of economic data, the market focus this week shifted to inflation readings to assess the impact of the surge in crude oil prices. The Fed is now facing a challenging situation to balance price stability with a still strong labor market. Meanwhile, UBS has revised down its 2026 end-of-year target for the S&P 500 index to 7,500 points.
In the corporate sector, health insurance stocks such as UnitedHealth and Humana surged following the announcement of an increase in Medicare Advantage plan payments by the US government for 2027. In addition, Broadcom recorded a rise in shares after inking an AI chip deal with Google, providing some support to the technology sector amid macroeconomic uncertainty.
