The United States is not heading into a sustained bout of high inflation, a top Federal Reserve Bank official said on Wednesday, despite a recent surge in energy and food prices that is sparking fears of 1970s-style price rises.

While sharp commodities price rises are a serious concern, prices of some like sugar and cotton are already starting to fall, and slow wage growth is acting as a brake on broader inflation, San Francisco Fed President John Williams told a Town Hall Los Angeles meeting in his first public comments since his appointment March 1.

Commodity costs make up only a small fraction of the price of most goods, and households see the current inflation bulge as transitory, he said. Those factors mean inflation will likely peak mid-year and then recede, returning by next year to about 1.25 percent to 1.5 percent, he said.

The Fed's informal inflation target is 2 percent target.

The economy today faces many pitfalls, but I don't believe that runaway inflation is one of them, Williams said in remarks prepared for delivery. The risk of a sustained period of high inflation is low.

Williams' remarks were in line with expectations for dovish policy views from the Fed's newest policymaker, and with the views of Fed Chairman Ben Bernanke, who has also said commodities price rises are transitory and do not merit a reversal of the Fed's super-easy monetary policy.

The Fed has kept interest rates near zero since December 2008 and is nearing completion of a bond-buying program that will add a total of $2.3 trillion in long-term assets to the Fed's balance sheet.

The policies have helped reduce high unemployment and kept the economy from falling into deflation, Williams said.

They are not the cause of sharply higher world commodity price rises, he said.

The real culprit is rising demand for materials and fuel from growing emerging economies, and fears of supply disruptions as political turmoil grips nations in North Africa and the Middle East, he said.

Economic recovery has been disappointingly slow, with high gas prices dragging on household spending and recent economic data lackluster. But it has now become self-reinforcing, with enough forward momentum to overcome these stiff headwinds, he said.

Williams said he expects real GDP to grow about 3.5 percent this year, and to strengthen next year. Meanwhile, unemployment should fall to 8.5 percent by the end of this year, from 8.8 percent in March.

As the economy strengthens, the Fed is preparing a plan to start removing stimulus when inflation and unemployment conditions merit, he said.

The plan includes draining bank reserves and reducing holdings of longer-term securities as well as raising the target policy rate, he said, without specifying a preference for any particular sequence.

Everyone at the Fed has learned the lessons of the '70s and is absolutely committed to making sure nothing like that happens again, he said. I view a sustained period of high inflation as very unlikely. But if we see signs of it developing, then we will act quickly and we will act decisively to ensure price stability.

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(Reporting by Ann Saphir, Editing by Chizu Nomiyama)

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