The Fed’s Adriana Kugler: ‘I am cautiously optimistic.’
Even in the best of times, the Federal Reserve has an incredibly hard to job. Making sure that prices stay relatively stable is only one part of its mandate.
As Fed Governor Adriana Kugler explained to the audience of leading economists, business leaders, and government officials at the 2024 SIEPR Economic Summit, the other part of the central bank’s work is to ensure that employment levels remain optimal so that inflation doesn’t pick up. Juggling the two objectives to keep inflation low, she said, often requires making trade-offs that aren’t always apparent.
Now is one of those times, she said, and the Fed’s task has been all the more challenging as the dynamics of employment levels, interest rates and inflation have played out in surprising ways over the past few years.
Kugler suggested that the Fed looks to academic research in moments like this — when the anticipated trade-offs between higher interest rates and a slowdown in job creation aren’t happening. And she singled out the Stanford Institute for Economic Policy Research for its work over the last 40 years “producing sharp analysis” and “fostering the kind of constructive dialogue” that makes for better economic policies.
“We have certainly learned a lot during the pandemic, but there is still much more to learn,” Kugler said in encouraging more research to shed light on today’s economy.
“Better understanding the trade-offs, or lack thereof, in pursuing the dual mandate will help researchers and policymakers draw lessons” from this period of high employment amid rising interest rates, said Kugler, a professor of economics and public policy at Georgetown, who became the first Latina to serve on the 7-member Federal Reserve Board of Governors last September. Kugler fills an unexpired term ending in early 2026.
Wealth inequality has declined
On what’s next for inflation, Kugler told the SIEPR audience that she is “cautiously optimistic” that prices will continue to stabilize and employment rates will remain strong.
She also reflected — in response to a question from Mark Duggan, the Trione Director at SIEPR and moderator of her keynote appearance — on another unexpected feature of the economic recovery since the COVID-19 pandemic began: Wages for the most disadvantaged groups — workers who aren’t white or college educated — have grown at a faster rate than any other demographic.
That’s not usually the case. When economies rebound from a downturn, the people who typically benefit first are those who are already fairly well off.
Rising wages, along with increases in home values, have helped narrow the wealth gap between the richest and poorest Americans, Kugler said.
“One of the most striking features of the post-pandemic recovery has been that the groups that have benefited the most during this recovery are the most disadvantaged,” she said.
This matters for the economy, she said, since lower-income workers tend to spend the most by far for every additional dollar they get than wealthier consumers do.
“Now that’s all good for the economy,” Kugler said.
Watch her full remarks and conversation with SIEPR Trione Director Mark Duggan.