By Howard Schneider

NEW YORK, (Reuters) – The current high inflation demands a substantial repositioning of Federal Reserve policy. However, it should not be so drastic that it restricts the economy or destroy employment. This was stated Friday by Charles Evans, Chicago Fed President.

Evans made ready remarks, arguing that the price pressures can be managed on their merits without Fed interest rate rises.

His thoughts on the Fed’s March and subsequent actions throughout the year were not detailed. He also did not engage in the debate about whether the Fed should increase the rate of interest by a greater than normal half-percentage point.

He said that his remarks were intended to help “discipline from scary guesses about the end of the world,” as the Fed loses control over inflation, and must risk sharp increases in unemployment or even a complete recession to manage it.

Evans stated that “our current monetary policy is not correct-footed in light of the sharp rise in inflation,” Evans told a University of Chicago Booth School of Business conference.

However, stripping out pandemic and supply chain effects that are likely to fade, “by my reading underlying inflation appears to still be well anchored at levels consistent with the Fed’s average 2 percent objective,” he said.

According to him, the present policy environment is likely to require less extreme financial restraint than past episodes. It also poses a lesser risk for jobs and growth that was necessary to address inflation in 1980s and 1970s.

“We don’t know what is on the other side of the current inflation spike… We may once again be looking at a situation where there is nothing to fear from running the economy hot,” and capturing benefits for workers, he said.

Evans made comments on the paper that was presented at the conference and which highlighted the advantages of the new Fed strategy. Evans contributed to the creation of this strategy that aims at capturing job gains through higher inflation and taking greater risk. That strategy has been questioned due to the sudden rise in prices that occurred during the pandemic.