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The Volker Shock
The Fed only has so many tools in its toolbox to wrangle the economy. Paul Volker thought that by raising interest rates, the Fed could cool down the economy and conquer inflation. Raising interest rates would make borrowing money more costly. In 1980, when Reagan was elected, inflation was at 13.5%. By 1983, it had dropped to 3.2%. The 80s were a boom for economic growth.