Adriana D Kugler: Inflation expectations and monetary policymaking
Speech by Ms Adriana D Kugler, Member of the Board of Governors of the Federal Reserve System, at the "Public Talk: Reflections on Recent Economic Developments", cosponsored by the Griswold Center for Economic Policy Studies and the Julis-Rabinowitz Center for Public Policy and Finance, Princeton University, Princeton, New Jersey, 2 April 2025.
The views expressed in this speech are those of the speaker and not the view of the BIS.
Thank you, Alan, and thank you to the Griswold and Julis-Rabinowitz Centers for the opportunity to speak to you today. As someone who has worked in both the public sector and academia, I applaud the common purpose of both centers in connecting researchers, policymakers, and the private sector to pursue policy ideas that serve the public good.
To that end, I can think of few individuals who have done more-as a teacher, researcher, government official, and public figure-than Alan Blinder. That includes educating the public about economic policymaking. In the spring of 2022, as many wondered whether Russia's war on Ukraine would add to the factors then driving up inflation, Professor Blinder wrote in the Wall Street Journal that a more important factor would probably be the public's expectations of future inflation.
As I will relate in these remarks, he was, of course, absolutely correct. As in the past, inflation expectations have played a crucial role in the course of inflation since the spring of 2022, and I expect they will be important in the Federal Reserve's ongoing effort to achieve sustained inflation of 2 percent. For that reason, I would like to focus on inflation expectations today, before discussing my outlook for the U.S. economy and the implications for appropriate monetary policy. First, I will describe inflation expectations within the conceptual framework that many economists use to connect inflation to broader economic activity, known as the Phillips curve. Second, I will discuss the central importance of the stability of these expectations, which we have come to call the "anchoring" of inflation expectations. Third, I will explain how firms and households form their inflation expectations and how these expectations affect their economic decisionmaking. Throughout, I will make some references to historical experiences with inflation but focus on the period since the pandemic.
Economists have long recognized the connection between inflation and overall macroeconomic conditions, but it was in trying to explain this empirical relationship and measure it with some precision that the importance of inflation expectations was revealed.