Paul Volcker's Aggressive Rate Hikes in the 1970s

In recent weeks, people have been circulating historical rate hike charts that are missing out the 1970s. This is a significant oversight as Paul Volcker was much more aggressive during this time period than many other Federal Reserve Chairmen. At the time, debt to GDP was only 30-35%, which is significantly lower than it is today (130%). This means that even though Volcker was much more aggressive with his rate hikes, he had less of an overall impact on the economy. Volcker took office in 1979 and immediately began raising interest rates to combat inflation. He raised them from 11% to 20% over two years, and then kept them at a steady level for several years afterwards. This caused a recession in 1981-1982, but it also helped bring inflation down from 13% to 3%. The economic effects of Volcker’s actions were felt long after he left office in 1987. His policies helped create a stable macroeconomic environment that allowed for low unemployment and low inflation throughout the 1990s and 2000s. It’s important to remember that while Volcker’s rate hikes were aggressive by today’s standards, they were relatively mild compared to what we are seeing now. With debt levels so high, any rate hikes could have serious consequences for the economy as a whole. That’s why it’s important to understand how past Federal Reserve Chairmen handled similar situations before making any decisions about future policy changes.