Paul Volcker

Economist and chairman of Federal Reserve under Carter and Reagan Born: September 5, 1927;

Died: December 8, 2019

PAUL Volcker, who has died aged 92, was an economist and chairman of the Federal Reserve chairman in the early 1980s when he elevated interest rates to historic highs and triggered a recession as the price of quashing double-digit inflation.

Volcker took charge of the Fed in August 1979, when the US economy was in the grip of runaway inflation. Consumer prices skyrocketed 13 per cent in 1979 and then by the same pace again in 1980.

Working relentlessly to bring prices under control, Volcker raised the Fed’s benchmark interest rate from 11% to a record 20% by late 1980 to try to slow the economy’s growth and thereby shrink inflation. Those high interest rates made it so expensive for people and companies to borrow that the economy weakened steadily.

By January 1980, a recession had begun. It lasted six months. A deeper and more painful downturn took hold in July 1981. It endured for 18 months and sent unemployment up to 10.8% in November and December 1982, the highest level since the Great Depression.

By sticking with his policies in the face of ferocious opposition, Volcker implicitly asserted the Fed’s independence from political and public interference.

Throughout its history, the Fed has been seen as needing to operate independently to properly carry out its key functions of maximizing employment and stabilizing prices.

In the past three years, President Donald Trump has challenged that independence with his frequent attacks on the Fed and his demands that it cut rates more aggressively.

Once inflation was subdued, Volcker himself was privately pressured by President Ronald Reagan to lower rates faster than he wanted. James Baker, Treasury Secretary during Reagan’s second term in the late 1980s, chose supporters of lower rates to the Fed’s governing board. This led to Volcker being outvoted on a rate decision in 1986, though his opponents backed down. News reports at the time said Volcker had threatened to resign.

The pain of the recession he helped cause eventually produced the desired results: inflation receded. Once it did, Volcker’s Fed began lowering interest rates.

And the economy rebounded vigorously enough for President Ronald Reagan to declare the arrival of “Morning in America’’ on his way to a landslide victory in the 1984 presidential election. Volcker left the Fed in 1987, succeeded by Alan Greenspan.

Volcker had spent most of his career in the public sector – at the Treasury Department, the Federal Reserve Bank of New York and the Fed board in Washington.

A towering 6ft 7in and perpetually rumpled, Volcker favored cheap cigars and bad suits. John Connally, a slick Texan who was Volcker’s boss at the Treasury in the early 1970s, once threatened to fire him if he didn’t get a haircut and improve his wardrobe. Volcker served in lucrative positions on Wall Street in between his stints in public service, including an early career at Chase Manhattan bank.

Volcker received a bachelor’s degree from Princeton University and a master’s from Harvard. In 1951, he spent a year at the London School of Economics as a Rotary Foundation Fellow.

His survivors include his second wife, Anke Dening, and two children.