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BNY's Americas Macro Strategist John Velis highlights that the Middle East conflict is creating challenges for the U.S. Federal Reserve's potential rate-cut trajectory. The conflict is driving higher oil prices, weakening investment portfolios, and increasing economic uncertainty, which together form a negative supply shock for the U.S. economy. These factors could delay or complicate the Fed's plans to reduce interest rates, which are typically used to stimulate growth during economic downturns. For markets, this means increased volatility in oil and equity sectors as investors react to geopolitical risks. Traders should monitor how oil prices respond to regional tensions and how the Fed balances inflation control with economic growth. A prolonged conflict could lead to sustained higher energy costs, impacting consumer spending and corporate profits globally. The implications for global markets are significant, particularly for energy-dependent economies. Gulf investors should watch for shifts in oil price trends and potential Fed policy adjustments. Additionally, the conflict's impact on supply chains and inflation expectations could ripple through global trade, affecting commodities and equities in energy and manufacturing sectors.
