The Volcker Tightening Cycle: Explaining the 1982 Course Reversal

Bill Dupor

Review, 2025

Abstract: This article studies the factors that led former Federal Reserve Chairman Paul Volcker to stop and then reverse course in the most famous monetary tightening cycle in U.S. history. I explain how the Fed began cutting its policy rate target, thus ending the tightening cycle, in July of 1982. Although the Fed had gained some ground in its fight against inflation, in mid-1982, inflation was running above 7 percent, well above the 2 percent inflation rate that the U.S. enjoyed before the Great Inflation. Beyond the Federal Open Market Committee’s (FOMC) partial success at taming inflation, I describe how economic pain and financial market stress were two practical and related considerations in the summer of 1982 that likely contributed to the monetary policy pivot. Finally, I discuss the political pressure facing the FOMC at that time.

Keywords: monetary policy tightening; inflation; Federal Open Market Committee (FOMC) (search for similar items in EconPapers)
JEL-codes: E52 (search for similar items in EconPapers)
Date: 2025
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