A Federal Reserve Governor urged policymakers to complicate the relationship between inflation and unemployment in the 2025 Whittington Lecture at the Georgetown University McCourt School of Public Policy on Feb. 20.
The governor, Adriana D. Kugler, is the former U.S. executive director of the World Bank and a professor at McCourt who focused her lecture on understanding inflation during the COVID-19 pandemic. Thomas DeLeire, Interim Dean of McCourt, and Filip Kulakov (MPP ’25), recognized by the 2025 Whittington scholarship for his academic achievement and community involvement, introduced Kugler as a member of the Board of Federal Open Market Committee, which is responsible for setting reserve requirements, among other monetary policy tools.
Kugler said the rise of inflation during and after the pandemic was gradual.
“The first notable wave of inflation came from prices,” Kugler said during the event. “Another wave of inflation came from goods other than food and energy — the economy of core goods. A third wave of inflation came from services cost, excluding housing. The fourth and final wave of inflation I will discuss came from housing services inflation during the pandemic.”
Kugler said models like the Phillips curve, a graph that demonstrates an inverse relationship between unemployment and inflation, can help policymakers conceptualize the problems citizens face.
“It is important for policymakers to be able to interpret the inflation process unrelated to macroeconomic conditions, including unemployment,” Kugler said.
Kugler added that adjusting the Phillips curve to fit the pre- and post-COVID-19 world is essential.
“This view captured inflation dynamics in the 1970s and early 1980s fairly well,” Kugler said. “But it was probably not applicable for the period since the late 1980s through the 2009 period, often called the Great Moderation. Rather, looking at inflation dynamics over an extended period, inflation appears to be more strongly related to long-run inflation expectations rather than to lag expectations or short-run inflation expectations.”
Janet Yellen, former chair of the Federal Reserve, developed a model of the Phillips curve, including several variables, such as import and energy prices. In her research, Kugler extended the results of Yellen’s model with data from 2019, the year before the COVID-19 pandemic spread across the United States. She said her model yielded similar results as Yellen’s but still has its drawbacks, namely that it did not account for the increase in inflation in 2021 and 2022.
Kugler said her studies, as well as past economists’ work, demonstrate that the vacancy-to-unemployment ratio, a measure of jobs available relative to the number of unemployed people, can provide better insight into inflation’s causes.
“My results actually echo those that find that the vacancy-to-unemployment ratio is a helpful measure of slack to consider in out-of-sample forecasting exercises,” Kugler said. “These are noteworthy results and a proof of concept that with additional augmentation, the Phillips curve model can better capture inflation dynamics during the recent period.”
Kugler said continual adjustments to the Phillips curve demonstrate the importance of diverse models.
“I think a clear lesson is that no single model alone can give a policymaker an understanding of every possible state of the economy,” Kugler said. “Policymakers must be open to various options, models and frameworks and not be afraid to experiment in search of more accurate answers.”
Kugler added that there is also reason to be hopeful about the alleged ultimatum between unemployment and inflation.
“Another lesson to be learned from this experience is that the feared harsh trade-off between unemployment and inflation, one that requires really large costs in terms of job losses and reductions in income in order to reduce inflation, did not materialize in the years immediately after the 2020 peak,” Kugler said. “This is a historically unusual but most welcome outcome.”
Kugler said her advice to students at Georgetown who hope to work in economic policy is to bring their identities into their work.
“I think it’s good to remind yourself of your authentic self wherever you go through your life and your career,” Kugler said. “Just because you’re at work, you don’t stop being who you are and that has a lot of value because that kind of colors the way you look. Don’t minimize who you are.”
“That is, in fact, what may add value to the discussion when you’re trying to get people with different trajectories, different personal stories to come together and understand the world around us,” Kugler said.