**MNI POLICY: Fed's Rosengren: Open to Rate Hike or Cut

By Jean Yung

     **WASHINGTON (MNI) - Federal Reserve Bank of Boston President Eric

Rosengren said Wednesday there would be little to no need for higher interest

rates if financial market pessimism leads to worse economic outcomes, but that

his own view on the outlook remains more optimistic, despite uncertainties.

     In light of significant uncertainty over global growth, international trade

and market turmoil, "The Federal Reserve's current monetary policy seems

appropriate for now, and can patiently observe future economic developments," he

said.

     "To that end, if the pessimism evident in financial markets eventually

shows through to economic outcomes, there would be less need (and perhaps no

need) for further increases in interest rates," he said.

     However Rosengren added that he suspects that financial market sentiment

"may have become unduly pessimistic" as it has diverged from the relatively

optimistic views of professional forecasters and Fed policymakers. He still

expects growth to be "solid enough to tighten the U.S. labor market somewhat"

this year.

     Rosengren's remarks signal a greater degree of flexibility in approach than

just a few months earlier, when he called for gradual rate hikes over the next

few years until policy arrived at a mildly restrictive stance. He rotates into a

voting position on the FOMC this year.

     --NO BIAS

     Rosengren called for the Fed to avoid a bias toward either raising or

lowering interest rates until data more clearly indicates the appropriate policy

move.

     His comments may foreshadow more edits to the FOMC's forward guidance,

which now calls for "some further gradual increases in the target range for the

federal funds rate ... consistent with sustained expansion of economic activity,

strong labor market conditions, and inflation near the Committee's symmetric 2

percent objective over the medium term."

     Policymakers already began chipping away at the statement in December and

have said they prefer language that places greater emphasis on being data

dependent.

     Rosengren on Wednesday stressed that tightening financial conditions

stemming from stock market declines as well as uncertainty in forecasts make it

imperative that monetary policy should be data dependent.

     "By this I mean that there should be no particular bias toward raising or

lowering rates until the data more clearly indicate the path for domestic and

international economic growth," he said.

     --POLICY STILL ACCOMMODATIVE

     The risk of weakness abroad leading to a U.S. economic slowdown has

increased, but growth was quite strong in 2018 and monetary and fiscal policy

remain accommodative, Rosengren said.

     Consumer spending continues to look strong, underpinned by a tight labor

market, rising wages and still high confidence levels. GDP growth is projected

to come in above-trend this year and the jobless rate could decline a tad

further, he said.

     Nevertheless, falling stock prices could portend a decline in future

economic growth. Should that materialize, policy would need to recalibrate, he

said.

     "At this juncture, with two very different scenarios - economic slowdown

implied by financial markets; or growth somewhat above potential GDP growth,

consistent with economic forecasts - I believe we can wait for greater clarity

before adjusting policy," he said.

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

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