The Great Inflation and Volcker disinflation (1965-1987)

1. Inflation begins rising in mid-1960s U.S. economy

   Jan 1, 1965Labels: United States, Great Inflation

   By the mid-1960s, inflation that had been relatively low in the early postwar decades began to trend upward. Federal Reserve research describes this as the start of the “Great Inflation,” a period in which policy choices and economic shocks allowed inflation to become persistent. This shift set the stage for later debates over whether the Fed should prioritize employment gains or price stability when the two goals conflict.

   • FedHistory
   • Fed IFDP

2. Nixon ends gold convertibility and imposes controls

   Aug 15, 1971Labels: Richard Nixon, Bretton Woods

   On August 15, 1971, President Richard Nixon announced a package that included suspending the dollar’s convertibility into gold—an action that helped unravel the Bretton Woods fixed-exchange-rate system. The same announcement launched “Phase I” wage and price controls (a 90-day freeze), an attempt to slow inflation by administrative rules rather than tighter monetary policy. These steps reshaped the economic policy environment in which the Fed operated during the 1970s.

   • State Hist
   • Natl Archives

3. OPEC oil embargo triggers first major oil shock

   Oct 17, 1973Labels: OPEC, Oil Embargo

   On October 17, 1973, Arab oil producers moved to restrict oil supplies to the United States and others during the Yom Kippur War, contributing to a sharp rise in energy prices. Higher oil prices flowed through to transportation and production costs across the economy, pushing inflation higher while growth weakened. This combination helped define the decade’s “stagflation” problem—high inflation alongside economic slowdown.

   • Britannica
   • History com

4. Humphrey–Hawkins Act formalizes Fed reporting goals

   Oct 27, 1978Labels: Humphrey Hawkins, U S

   On October 27, 1978, President Jimmy Carter signed the Full Employment and Balanced Growth Act (Humphrey–Hawkins). The law set national economic goals and required the Federal Reserve to report regularly to Congress on its plans and performance. In practice, it reinforced public attention to the tension between fighting inflation and supporting employment, while increasing scrutiny of Fed policy during a turbulent period.

   • FedHistory
   • Wikipedia

5. Paul Volcker becomes Federal Reserve Chair

   Aug 6, 1979Labels: Paul Volcker, Federal Reserve

   On August 6, 1979, Paul A. Volcker became chairman of the Federal Reserve Board. By that time, inflation was already high and widely seen as entrenched, meaning households and businesses expected prices to keep rising. Volcker’s appointment marked an inflection point toward a more aggressive anti-inflation strategy at the Fed.

   • FedHistory
   • Fed IFDP

6. Fed adopts new operating procedures to restrain money

   Oct 6, 1979Labels: Federal Open, Monetary Policy

   On October 6, 1979, the Federal Open Market Committee adopted new policy procedures that put more emphasis on controlling bank reserves and the growth of monetary aggregates (like M1), rather than smoothing the federal funds rate day to day. The change allowed interest rates to move more sharply, signaling a stronger commitment to slowing inflation. It became the signature opening move of the Volcker disinflation.

   • FRBSF
   • Fed IFDP

7. 1980 recession begins amid tight monetary policy

   Jan 1, 1980Labels: 1980 Recession, NBER

   In January 1980, the U.S. economy entered a recession that the NBER later dated as running from January to July 1980. Rapid tightening and very high interest rates contributed to reduced borrowing and spending, particularly in interest-sensitive sectors. The short recession signaled the immediate economic costs of disinflation efforts.

   • NBER
   • Fed Board

8. Monetary Control Act expands Fed authority

   Mar 31, 1980Labels: Monetary Control, Depository Institutions

   On March 31, 1980, the Depository Institutions Deregulation and Monetary Control Act was signed into law. Among other changes, it extended Federal Reserve reserve requirements to a broader set of depository institutions, strengthening the Fed’s ability to manage monetary conditions. The law also began phasing out some deposit-rate restrictions, reflecting how high inflation and high market rates were straining the existing banking framework.

   • Fed Statutes
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9. NBER dates trough of 1980 recession

   Jul 1, 1980Labels: NBER, 1980 Trough

   In July 1980, the NBER identified the economy’s low point (trough) for the short 1980 recession. The economy then entered a brief expansion, but inflation pressures and expectations remained a serious concern. This set up the “double-dip” pattern that followed when the Fed tightened again.

   • NBER
   • Fed Board

10. Federal funds rate peaks near June 1981

    Jun 1, 1981Labels: Federal funds, Federal Reserve

    By mid-1981, interest rates had reached exceptional levels as the Fed kept monetary policy tight to bring down inflation. Congressional Research Service data show the effective federal funds rate peaking in June 1981 at about 19.1 percent. These high rates helped reduce inflation over time, but they also intensified financial stress and weakened economic activity.

    • CRS
    • FedHistory

11. 1981–1982 recession begins as tightening continues

    Jul 1, 1981Labels: 1981 1982, NBER

    In July 1981, the U.S. entered a deeper recession that would last until November 1982, according to the NBER’s business-cycle chronology. The Fed’s determination to break inflation expectations kept financial conditions restrictive even as unemployment rose. The recession became a major turning point: it showed the scale of economic pain policymakers were willing to accept to restore price stability.

    • NBER
    • FedHistory

12. Garn–St Germain Act responds to high-rate strains

    Oct 15, 1982Labels: Garn St, Thrift Crisis

    On October 15, 1982, President Ronald Reagan signed the Garn–St. Germain Depository Institutions Act. The law aimed to ease pressures on banks and thrifts that were struggling in a high-interest-rate environment, including problems caused by deposit-rate limits and losses on older, fixed-rate mortgages. This was part of a broader shift toward deregulation as policymakers tried to stabilize the financial system while disinflation was still underway.

    • FedHistory
    • Wikipedia

13. NBER dates recession trough; recovery begins

    Nov 1, 1982Labels: NBER, 1982 Recovery

    In November 1982, the NBER later determined, the recession reached its trough and an expansion began. Inflation had fallen substantially from late-1970s highs by this point, and long-term interest rates began to ease as confidence in lower inflation improved. The turning point marked the practical end of the Great Inflation era in the United States.

    • NBER
    • FedHistory

14. Volcker’s Fed continues through 1980s “inflation scares”

    Jan 1, 1983Labels: Volcker Fed, Price Stability

    After the 1981–1982 recession, the Fed faced periodic episodes when markets worried that inflation might return—often called “inflation scares.” Federal Reserve histories emphasize that Volcker and his successors maintained a strong commitment to price stability, helping prevent a return to the 1970s pattern of double-digit inflation. This phase shows the longer-term legacy of disinflation: credibility became a central tool of monetary policy.

    • FedHistory
    • Fed IFDP

15. Volcker leaves office, closing disinflation era

    Aug 11, 1987Labels: Paul Volcker, Fed Chair

    On August 11, 1987, Paul Volcker’s term as Federal Reserve chair ended. By then, the U.S. had moved away from the Great Inflation and toward a period where low and more stable inflation was a central policy objective. His departure provides a clear endpoint for the 1965–1987 story: inflation was no longer the defining macroeconomic crisis it had been in the 1970s and early 1980s.

    • FedHistory
    • Fed IFDP