Goldman Sachs CEO Solomon: The market's mild reaction to Iran is surprising, and it may take a few more weeks to fully digest.

Goldman Sachs CEO Solomon stated that the financial markets’ reaction to the Middle East conflict has been unexpectedly calm. This situation surprised him, but he also warned that it will take several weeks for the markets to fully digest the impact of this conflict.

According to Bloomberg, Solomon said on Wednesday at the Australian Financial Review Business Summit in Sydney that there are still too many unknowns, and investors are assessing whether this conflict will turn into a prolonged war and whether it will start to impact consumption. The US commitment to ensuring the safety of shipping through the Strait of Hormuz has helped stabilize market sentiment to some extent.

Meanwhile, the ripple effects of the Iran conflict continue to spread. Israel has launched a new round of airstrikes against Tehran, while Iran has launched missiles at Qatar, Bahrain, and Oman. Qatar stated that the targets are not limited to military facilities. Regarding inflation expectations, rising oil prices have sparked concerns about a resurgence of inflation, leading traders to lower expectations for Federal Reserve rate cuts.

According to Xinhua News Agency and CNN, since the US and Israel launched military actions against Iran, US Special Envoy for Iran Brian Hook has not engaged in diplomatic contact with Iran.

It will take several weeks for the markets to truly digest the impact of this conflict.

“I see the market reaction, and I actually find it quite surprising,” Solomon said. “The market’s response has been quite mild.”

He noted that, given the many unknown variables in the current situation, it is difficult to make predictions at this stage. However, Solomon also pointed out that the surge in the VIX index and other volatility indicators is not surprising to him.

“It will take the markets a few weeks to fully digest the impact of this conflict,” he said. “Everything happening now will have a cumulative effect and could lead to a stronger reaction. So far, we haven’t seen that cumulative effect.”

The inflation pressure from rising oil prices has led markets to reprice the Federal Reserve’s monetary policy path, and the inflation rebound risks triggered by the Iran war threaten the global economy.

Solomon stated that US backing for the safe passage of shipping through the Strait of Hormuz remains one of the key factors supporting market sentiment, but whether this situation can be sustained depends on the developments in the coming weeks.

Despite rising geopolitical risks, Solomon remains optimistic about the medium-term outlook for the US economy. He pointed out that the start of an easing monetary cycle and significant regulatory loosening together provide solid support for the US economy.

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