The Volcker Shock

The Volcker Shock refers to the economic policy implemented by Federal Reserve Chairman Paul Volcker in the early 1980s to fight high inflation in the United States. To do this, the Fed significantly increased interest rates, making borrowing more expensive. This sharp rise in rates caused a slowdown in economic growth and led to a recession, but it successfully reduced inflation from double-digit levels. The policy demonstrated how controlling inflation often requires short-term economic pain but can stabilize prices and lay the groundwork for healthier long-term growth.