Volcker Disinflation

The Volcker Disinflation was the sustained tightening of United States monetary policy carried out by Federal Reserve chairman Paul Volcker beginning in 1979, which switched the Federal Reserve's operating target from the federal funds rate to bank reserves and let interest rates rise sharply, taking the federal funds rate to a peak of 20 percent in June 1981 and the prime rate to 21.5 percent. The policy deliberately induced the 1980 to 1982 recession, in which national unemployment rose above 10 percent and farmers and homebuilders mounted some of the strongest protests in the Federal Reserve's history, but it broke the inflation of the 1970s: inflation, which had peaked near 14.8 percent in March 1980, fell below 3 percent by 1983. It remains the reference case for monetarist and Chicago School arguments that a central bank can end an entrenched inflation only by accepting a real, if temporary, cost in output and employment.