Paul Volcker, who as chairman of the Federal Reserve under Presidents Jimmy Carter and Ronald Reagan helped tame inflation with 22% interest rates that also crunched American manufacturing, farming and real estate but led the way to two decades of expansion, has died. He was 92.
He died Sunday at 5 p.m. ET at his home in New York, according to the Volcker Alliance, a nonpartisan, nonprofit organization he founded in 2013 — when he was age 86 — to promote public service.
"Paul A. Volcker was a giant among American public servants," Alliance President Thomas W. Ross said in a statement Monday. "He was a man of great courage and integrity who committed most of his working life to the public good. He believed in the importance of an effective government to our democracy. He cared deeply about the future of America and those who serve in our government."
"Paul Volcker was an inspiration to me and to everyone in the Federal Reserve," said Janet Yellen, Fed chair under Presidents Barack Obama and Donald Trump. "He embodied the values we hold most dear: devotion to public service, the courage to do the right thing, even when it's immensely unpopular, a commitment to strong and effective regulation of the banking system and the highest ethical standards. We have Paul Volcker to thank for taming inflation and ushering in a long period of macroeconomic stability."
Years after the Great Recession, Volcker headed Obama's Economic Recovery Advisory Board and pushed to create a namesake regulation, the Volcker rule, which sought to rein in commercial banks by prohibiting them from making the risky investments that helped spark the 2007 financial crisis.
The cigar-smoking Volcker, who stood 6 feet, 7 inches and was known as "Tall Paul," became Fed chairman under Carter in August 1979, was renominated by Reagan in 1983 and served until 1987. Even before his 1979 nomination, he had a reputation as an inflation buster.
"In terms of economic stability in the future, that [inflation] is what is likely to give us the most problems and create the biggest recession," Volcker said in a 1979 Federal Open Markets Committee meeting months before he became the central bank's chairman.
The inflation rate was 1% under President Lyndon Johnson in 1965 but ballooned to a breakneck 14.8% in March 1980. To combat the price rises, Volcker's Fed jacked up the federal funds rate and tightened the money supply. The rate, used by banks and credit unions for overnight loans to other depository institutions, reached a record 22.36% in July 1981. (By comparison, it was zero to 0.25% from December 2008 to December 2015, during the financial crisis and its aftermath.) Shortly after becoming Fed chairman, Volcker raised the discount rate by 0.5%, which would be considered a sizable jolt today.
One of his big concerns was to change the expectations, and hence the actions, of people who believed prices would continue to rise rapidly.
"We are dealing with an inflationary momentum, and patterns of thinking and behavior, that have developed over decades," Volcker told the National Press Club in September 1981. "Something like half the working population — those under age 35 — have never known price stability in their working experience. ... We have become accustomed to living with inflation, adjusting to it — and anticipating more. And as we have done so, we unwittingly set in motion forces that have kept it going."
Within two years of the Fed's peak interest rate, inflation fell below 3%, ending the period dubbed the Great Inflation.
Still, the high interest rates had their stifling effects. The economy plunged into recession. Before the 2007-09 bust, the 1981-82 recession had been the worst economic downturn in the United States since the Great Depression. The unemployment rate in 1982 hit 10.8% — more than 1 in 10 would-be workers — still the highest since 1940.
Volcker was vilified. A trade publication, the Tennessee Professional Builder, published a "wanted" poster of Volcker in early 1982 and accused him and the Fed of "premeditated and cold-blooded murder of millions of small businesses."
"Without his bold change in monetary policy and his determination to stick with it through several painful years, the U.S. economy would have continued its downward spiral," William Poole, former president of the St. Louis Federal Reserve, wrote in a 2005 tribute. "By reversing the misguided policies of his predecessors, Volcker set the table for the long economic expansions of the 1980s and 1990s."
Paul Adolph Volcker Jr. was born in Cape May, New Jersey, on Sept. 5, 1927, and grew up in Teaneck, where his father was the manager of the leafy northern Jersey suburb. He graduated summa cum laude from Princeton in 1949, later received a master's degree in political economy from Harvard and became an economist at the New York Federal Reserve in 1952. He went on to work at Chase Manhattan Bank and the Treasury Department, where he served as President Richard Nixon's undersecretary of the Treasury for international monetary affairs from 1969 to 1974.
With unemployment and inflation growing and demand for the dollar weakening, the economy was in crisis mode in 1971. Volcker was among the White House economic advisors, including Fed Chairman Arthur Burns and Treasury Secretary John Connally, who created the "Nixon shock" policies. First, they unilaterally canceled the direct international convertibility of the U.S. dollar to gold — effectively ending the postwar Bretton Woods system of fixed currency exchange rates — and then imposed a 90-day freeze on wages and prices to check inflation, the first such non-wartime controls.
Volcker left the Treasury in 1974 and became a senior fellow at Princeton's Woodrow Wilson School. Almost exactly a year after Nixon resigned as president in August 1974, Volcker returned to the central bank as president of the New York Fed, where he advocated monetary restraint.
Volcker's concern about inflation had a lasting impact on the central bank. Monitoring rising prices is one of the Fed's dual mandates, along with employment trends, in taking the pulse of the economy and setting interest rates.
After his inflation-busting days at the Fed, Volcker became chairman of the Wolfensohn & Co. investment firm. In 1996, he led a commission that investigated dormant Swiss bank accounts of Jewish victims of the Holocaust. His work led to a settlement of $1.25 billion.
In the aftermath of the Great Recession, he led Obama's economic recovery board from 2009 to 2011. He was critical of financial institutions' roles in bringing on the 2008 economic meltdown and called for limiting the size of the nation's biggest banks. As such, he was instrumental in the creation of the Volcker rule, part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The rule sought to prevent commercial banks from using their own funds to invest in derivatives, hedge funds and private equity firms.
Volcker wrote nine books, including "Keeping At It: The Quest for Sound Money and Good Government," a memoir published in October 2018 — when he was 91.
"I had no intention of writing a book, but there was something that kind of was irritating me," he told New York Times columnist and CNBC host Andrew Ross Sorkin at the time. "I'm really worried about this governance thing."
Referring to the state of the nation, he added, "We're in a hell of a mess in every direction."
Survivors include his wife, Anke Dening, and two children from his first marriage to Barbara Bahnson, who died in 1998.
Correction: Paul Volcker was Fed chairman under President Reagan until 1987. An earlier version in one reference misstated who was president.