Adriana D Kugler: Assessing maximum employment
Speech by Ms Adriana D Kugler, Member of the Board of Governors of the Federal Reserve System, at the Reykjavík Economic Conference, organised by the Center for International Macroeconomics at Northwestern University and the Central Bank of Iceland, Reykjavík, 9 May 2025.
The views expressed in this speech are those of the speaker and not the view of the BIS.
Thank you, Francine, and thank you to the Central Bank of Iceland for the invitation to speak to you today.
My subject is the Federal Reserve's mandate of maximum employment. In the Fed's monetary policymaking, maximum employment and stable prices are linked in the mandate assigned to the Federal Reserve by U.S. law, which we refer to as the dual mandate. Icelanders, I know, are a seafaring people, and those here will understand what I mean when I say that the dual mandate is our "lodestar," a word our two languages share. It is our goal and our guide in setting monetary policy.
There is an important distinction between our dual-mandate goals. For reasons that I will explain, while the Federal Open Market Committee (FOMC) has defined "stable prices" as 2 percent annual inflation, such numerical precision is not possible in defining maximum employment.
To achieve price stability, the Fed adopted a numerical target for inflation in 2012 that hasn't changed. It has remained unchanged because the Committee has repeatedly reaffirmed the judgment that it made in 2012 that 2 percent inflation is the rate most consistent with its statutory mandate. In contrast, the Federal Reserve has not spelled out a numerical goal for the unemployment rate or some other measure of employment because maximum employment can move up and down over time and is not directly measurable, and also because the different factors that determine it are either difficult or impossible to measure in real time.