Volcker took measures to raise the benchmark interest rate by 4 percentage points to 15.5 percent on October 6, 1979, despite the economic recession.
At that time, the media called it "Saturday Night Massacre. Then the general bank interest rate jumped nearly 20%.
The Carter administration was very displeased with Volcker's high-interest policy. Nevertheless, Carter was president, but he did not intervene in Volcker's policy to protect the Fed's independence.
When Carter failed to re-election and Reagan won the presidential election instead, Volcker pushed for a higher interest rate policy more strongly. In June 1981, the benchmark interest rate was raised to 20%.
It was a scary decision. As can be seen from the nickname "Iron Volcker," Chairman Volcker took a strong drive to raise interest rates without breaking his conviction, including the president.
At that time, Reagan's aides warned, "If you leave Fed Chairman Volcker as he was, you will fail to serve a second term like Carter," but Reagan did not intervene because of the Fed's independence. Volcker raised the benchmark interest rate to 21.5% in 1981. This high interest rate lasted three years.
In 1981, a large number of U.S. farmers who were in debt drove tractors to Washington. They marched in the middle of the city, blocked the Fed building, and demanded Volcker's resignation.
It wasn't just these people. A vindictive man stormed into the Fed building with a weapon when his company closed after being hit directly by an unprecedented high-interest rate.
Volcker, who is over 2m tall, suffered from all kinds of protests and threats of murder to the extent that he had to carry a pistol around his body while in office. Interest rates soared to the 20% level, and the unemployment rate exceeded 10%.
This resulted in millions of Americans losing their jobs and plunging consumption. Automakers and construction companies were driven into bankruptcy. However, Volcker thought that the U.S. economy had no future without inflation, which is heartbreaking.
In the middle of 1981, the effect began to appear. Money began to enter the bank because interest on bank deposits was high.
The difference between the benchmark interest rate of 21.5% and inflation of 14% at that time alone was a high interest rate of more than 7% points. Inflation began to catch as market liquidity declined.
The inflation rate fell from 14.6% a year ago to 9%. In 1982, it subsided to 4%, and fell to 2.36% the following year. The Fed overcame inflation through austerity monetary policy.
The economy revived vigorously when Paul Volcker lifted the austerity under the judgment that the economy had suffered enough.
The Dow, which had fallen to 817 points in April 1980, rose to 1,130 points in March 1983. After an uneasy period, the market began to strengthen enough to be said to be the best in the 200-year history of the United States.
Stock investors steadily increased, surpassing 40 million by the end of 1985, surpassing the 2,000-point level in the Dow on January 8, 1987. It took 76 years to break the 1,000-point mark and 14 years to break the 2,000-point mark.
This was the era of $20,000 per capita national income in the United States. Volcker served as Fed chairman for eight years until 1987. His successor, Alan Greenspan, led the U.S. economy competitively based on Volcker's stable economic foundation.
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