Federal Reserve Bank of Boston: The U.S. Economy May Experience Prolonged Period of High Inflation

BlockBeats News, July 3rd, Boston Fed President said on Thursday that persistently high U.S. inflation may last for a period of time, which may seep into consumer psychology, and businesses may need a year or longer to adapt to the changes in trade and other policies that are taking place. This implies a reason to remain patient before cutting interest rates. He said: "The main conclusion is that the adjustments of prices and the broader economy to U.S. trade and other policy changes that are forthcoming, as well as geopolitical developments, will not be the transient and straightforward one-time price changes implied by the standard textbook model." "Instead, it appears increasingly like a process that may take a year or longer to fully play out." "If I am right, then the U.S. economy may experience longer-lasting high inflation."

Bostic said, "I expect prices to not spike dramatically, but rise steadily," which may seep into consumer inflation expectations, posing a greater challenge to the Fed. He also stated that the non-farm payrolls data released on Thursday showed that new job additions exceeded expectations, with the unemployment rate edging down to 4.1%, "the overall health of the labor market remains healthy," and there are no signs of deterioration that may necessitate a pre-emptive rate cut. He said that the high degree of uncertainty in the current employment, economic growth, and inflation outlook "is not a time for a significant shift in monetary policy," and he believes that the current wait-and-see attitude of the FOMC is still appropriate. (FXStreet)