**MNI INTERVIEW: Sept Rate Hike Highly Likely, Rosengren Says

By Sara Haire

     BOSTON (MNI) - A potential trade war would make it harder for the Fed to

interpret future inflation signals, Boston Federal Reserve Bank President Eric

Rosengren told MNI in an exclusive interview Saturday, adding that gradually

raising rates continues to be appropriate and a September hike is highly

probable.

     As President Donald Trump faces off with major trading partners,

threatening tariffs on their goods unless they make concessions to favor the

U.S., Rosengren said that if tariffs are imposed around the world, there would

be a misallocation of resources which would cause "a lot of uncertainty about

what the pricing pressures will be."

     "Tariffs are going to make it much harder to disentangle whether that's a

relative price change caused by the tariff or whether they're broader pricing

pressures that are going on in the economy," Rosengren said.

     While firms may have to push costs onto the consumer if their costs begin

to rise, tariffs may also create an environment where "firms feel more

comfortable passing on prices because they can attribute it to the tariff,

whether it's the tariff or not."

     In addition, if the labor market remains tight, "you're in an environment

where people are going to be asking for higher wages," Rosengren said. If this

is happening, the tariffs are not going to just be a one-time shock, but it will

be about "how expectations start getting reflected."

     The Federal Open Market Committee is set to meet September 25-26 and

according to Rosengren, there is a "very high probability," of a rate rise.

     Rosengren had originally priced in four hikes for the year and the economy

appears to need one more following September, he said. If year-end growth is at

the expected 3%, "another tightening would be appropriate at the end of the

year, assuming we don't have a big shock that I'm not anticipating."

     When asked about whether he has a margin to allow inflation to overshoot

the Fed's "symmetric objective," Rosengren said the Committee has never defined

what symmetric means and that understanding of the term varies amongst its

members. For Rosengren, it is less about an inflation overshoot or undershoot

and more about the path of inflation over time.

     Currently, he said: "...inflation's not as big of a problem as it

historically has been."

     The Fed's approach of raising rates gradually means there is less of a

chance it will "make a big mistake," he said.

--MNI Washington Bureau; +1 212-800-8517; email: sara.haire@marketnews.com

[TOPICS: MMUFE$,M$U$$$,MX$$$$]