Today, Federal Reserve (Fed) Chairman Jerome Powell had to forget his desire to raise interest rates continuously following the global banking crisis that threatens the growth prospects of the United States.
However, did you know that more than 40 years ago there was an individual named Paul Volcker who took 'crazy' actions just to lower inflation?
What happened?
Between 1978 and 1979, there was a sharp rise in US inflation that forced President Jimmy Carter to reshuffle his economic policy team and appoint Paul Volcker as chairman of the Fed's Board of Governors.
During his two terms in office from 1979 to 1987, Volcker focused on efforts to reduce inflation by raising interest rates.
When Volcker took office in August 1979, inflation was at an annual rate of 12% in the wake of two energy shocks (the Arab oil embargo beginning in 1973 and the Iranian revolution beginning in 1978), and accommodative Fed policy.
As a result, he immediately started raising interest rates and took an unfavorable monetary approach to tighten the money supply.
In just 18 months after being appointed, he dared to raise the interest rate to a record high of 20%!
As a result of the move, the US economy plunged into recession in 1981 and 1982, seeing the unemployment rate soar to 10.8%.
Throughout the effort, Volcker has faced various pressures from the public, Congress that threatened his impeachment and physical threats that forced him to hire bodyguards.
Even so, Volcker's firm stance helped the country quickly bring inflation down from a peak of 14.8% to 3% by 1983.
It was one of the defining moments in the history of US monetary policy and was also painful for the people, where nearly 4 million people lost their jobs in the recession of the early 1980s.
However, the impact lasted until the next 4 decades, where inflation did not become a serious problem in the US before the Covid-19 epidemic hit which was then followed by the Ukraine-Russia war.
Today, Jerome Powell is facing a difficult moment to lower inflation which is currently at 6% after peaking at 9.1% in June 2022, amid the threat of a global banking crisis.
