‘Internal Discipline’
In his 2018 memoir, “Keeping At It,” Volcker said that targeting the money supply provided the Fed with two advantages: A simple message to convey to the American public, and “an internal discipline that had been lacking.”
“We were ‘lashed to the mast’ in pursuit of price stability,” he wrote. “Did I realize at the time how high interest rates might go before we could claim success? No.”
Volcker’s policies came at a high price and the fallout contributed to Ronald Reagan’s landslide victory over Carter in the 1980 presidential election. The U.S. economy went into recession twice during his tenure, the jobless rate climbed to 10.8% in November 1982, and bad loans and bankruptcies soared. Homebuilders and farmers protested. Congressional leaders including Democratic Senator Robert Byrd of West Virginia and Republican Representative Jack Kemp of New York introduced legislation aimed at requiring the Fed to lower interest rates. The bills were not adopted.
A bodyguard was assigned to Volcker after a man entered the Fed building in Washington with a sawed-off shotgun, revolver and knife, according to William Greider’s 1987 book “Secrets of the Temple.”
Congressional Hearings
Volcker struck some as aloof during televised congressional hearings, puffing on a cigar and shaking his head while being questioned by angry lawmakers. Toward the end of his tenure at the central bank, he was challenged by Reagan appointees to the Fed who favored lower rates.
Though he was vilified in some quarters for the impact on business, his determined--and successful--assault on inflation won him admirers in both U.S. political parties and among a generation of central bankers from New Zealand to South Africa.
Volcker “deserves primary credit for the signal macroeconomic achievement of the past 30 years -- slaying the inflation monster that was engulfing the American economy at the end of the 1970s,” Charles R. Morris wrote in “The Sages,” his 2009 book about Volcker, Warren Buffett and George Soros. “The stable global economic growth of the 1980s and 1990s was grounded on Volcker’s conquest of inflation.”
Volcker stepped down in 1987, saying he didn’t want a third term. His departure and Reagan’s nomination of Alan Greenspan prompted stocks, bonds and the dollar to slide. By that time, the Fed’s benchmark rate was at 6.75%, inflation had slowed to about 4%, and the economy was in the fifth year of an economic expansion.
Volcker became chairman of James D. Wolfensohn & Co., a mergers-and-acquisitions firm that became Wolfensohn & Co. He left after the firm was sold to Bankers Trust in 1996.
Global Assignments
His reputation for rigor and fairness led to his appointment in 1996 to supervise the payment of claims by Swiss banks to Holocaust victims, and in 2004-2005 to lead an independent investigation of the United Nation’s oil-for-food program in Iraq. In 2002 he led an unsuccessful effort to salvage part of Arthur Andersen LLP, the accounting firm that collapsed following its conviction of obstructing justice in the investigation of Enron Corp., its client -- a ruling that would be overturned by the U.S. Supreme Court in 2005.