By Howard Schneider

WASHINGTON The U.S. Federal Reserve may be on the cusp of "something rare" by lowering inflation without a major blow to jobs and growth, and must be "extra careful" about relying too much on the history of past inflation fights in plotting further policy moves, Chicago Fed President Austan Goolsbee said on Thursday.

"Believing too strongly in the inevitability of a large trade-off between inflation and unemployment comes with the serious risk of a near-term policy error," Goolsbee said in a critique of the "traditionalist view" that slowing inflation requires significant economic pain in the form of rising unemployment and slowed growth, or even recession.

Goolsbee's remarks, prepared for delivery at the Peterson Institute for International Economics in Washington, did not explicitly say he opposed any further interest rate increases, but were stuffed with cautionary language about the risks of misreading the current situation.

Inflation remains about double the Fed's 2% target, but has been slowing.

Goolsbee said that longstanding views about what it will take to finish the inflation battle may no longer apply, and he cited recent Chicago Fed staff research indicating inflation could reach the U.S. central bank's 2% target "soon," and without any further rate increases.

"Holding to the simple historical correlations of what growth and labor market conditions mean for inflation in the face of positive supply developments is a recipe for overshooting and causing an unnecessary downturn," said Goolsbee, who currently has a vote on Fed interest rate policy.

The inflation that erupted in 2021 was largely driven by supply shocks and labor shortages that have gradually eased, he said, making it less necessary to discourage demand with high interest rates, and damaging jobs and growth in the process.

Goolsbee also said that "well-anchored" public expectations about inflation can allow the pace of price increases to fall "with less economic pain than was needed in the past."

The Fed held its benchmark overnight interest rate steady in the 5.25%-5.50% range after the end of a policy meeting last week. A majority of Fed officials, in projections released after that meeting, said they believe one more rate hike will be needed.

(Reporting by Howard Schneider; Editing by Paul Simao)