Fed's Bostic: Adjustment to Trump policies could take a year or more

By Howard Schneider

WASHINGTON, July 3 (Reuters) - The U.S. is likely facing a period of elevated inflation that risks seeping into consumer psychology, with companies likely needing a year or longer to adjust to the shifts underway in trade and other policies, Atlanta Fed president Raphael Bostic said on Thursday, spelling out the case for patience before any rate cuts.

"The main punchline is that the adjustment of prices and the broader economy to changes in trade and other forthcoming policies in the United States, along with geopolitical developments, is not going to be a short and simple one-time shift in prices, as standard textbook models would suggest," Bostic said in remarks prepared for delivery to an economic conference in Germany. "Instead, this increasingly looks like a process that may take a year or more to fully play out."

"If I’m right, then the U.S. economy will likely experience a longer period of elevated inflation readings. I wouldn’t expect we would see dramatic spikes, but rather a steady progression" that could seep into consumer inflation expectations and pose a more difficult challenge for the Fed, Bostic said.

With new data on Thursday showing stronger job creation than expected and a slight fall to 4.1% in the unemployment rate, "labor market conditions remain broadly healthy," Bostic said, and are not yet showing signs of the sort of deterioration that might warrant preemptive rate cuts.

The current high level of uncertainty about the direction of jobs, growth and inflation, "is no time for significant shifts in monetary policy," Bostic said, arguing that the current "wait and see" approach of the Federal Open Market Committee remains appropriate.

The Fed has kept its policy rate of interest on hold since December, despite calls from President Donald Trump for immediate and steep rate cuts.