Paul Volcker

Paul Volcker as chairman of the Federal Reserve from 1979 to 1987 broke American inflation by raising interest rates to around twenty per cent, causing the deepest recession since the 1930s and setting the pattern for central banking ever since. He had already been at the centre of the other great monetary event of the century's second half: as under-secretary of the Treasury he was one of the architects of the decision to close the gold window in August 1971, ending the Bretton Woods system. Carter appointed him to the Fed with inflation running near thirteen per cent after a decade in which it had been repeatedly declared beaten. He announced in October 1979 that the Fed would target the money supply and let rates go where they had to, which was a way of accepting the political blame in advance. The federal funds rate passed nineteen per cent, unemployment reached nearly eleven per cent in 1982, farmers blockaded the Fed building with tractors and car dealers mailed him the keys of unsold vehicles. Inflation fell from over thirteen per cent to about three by 1983. The cost fell heavily on manufacturing and on indebted developing countries, where the rate rise was a direct cause of the Latin American debt crisis that opened with Mexico's default in 1982. Reagan reappointed him once and replaced him with Alan Greenspan in 1987. He chaired the inquiry into dormant Holocaust-era accounts in Swiss banks, the investigation into the UN oil-for-food programme, and Obama's economic recovery board, where he gave his name to the Volcker Rule restricting proprietary trading by banks. He was six feet seven, smoked cheap cigars, and is the standard example of a central banker who accepted being hated.

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