Volcker Shock

About Volcker Shock

Federal Reserve Chairman Paul Volcker raised the federal funds rate to 20 percent in 1981 to kill inflation. The decision caused the worst recession since the 1930s. Unemployment reached 10.8 percent. Interest rates on mortgages exceeded 18 percent. Farm bankruptcies soared. The Latin American debt crisis exploded as countries could not service dollar debts at 20 percent rates. But inflation fell from 14.8 percent in 1980 to 3.2 percent by 1983. The Volcker Shock established Federal Reserve credibility and broke the inflationary psychology of the 1970s. It also began a 40 year decline in interest rates that ended only in 2022. Volcker, at 6 foot 7, was an imposing figure both physically and historically.