And, finally, I have no choice but to “keep at it.” I will become very unpopular during this difficult process. If expectations remain stubbornly high, I will have to do something more drastic. If I were a central banker reading Volcker’s account today, I’d conclude four things from it: I’ve got to watch the inflation rate very closely to make sure my incremental raising of interest rates is in fact beating down inflation expectations. We tend to think the 2020s are uniquely crazy but other eras have had their craziness, too. One of Volcker’s speeches was disrupted when rats were let loose in the audience. By December 1980 the Fed’s security people prevailed on Volcker to accept “personal security escort protection.” The following year an armed man entered the Fed building and threatened to take the board hostage. The message was not always well received. William Watson: To judge industrial policy, we need a Ghost of Subsidies Past.William Watson: Don’t copy the Americans on industrial policy.We had a message to deliver, a message to the public and to ourselves.”

“I suppose if some Delphic oracle had whispered in my ear that our policy would result in interest rates (that high), I might have packed my bags and headed home. Where they went, some of them, was over 20 per cent. I sure never thought they would go as high as they did.’ “If they did,” he responded, “the answer would have been ‘I don’t know,’ because I didn’t know. In a Fed oral history interview in 2008 he was asked whether administration officials he told about the new procedures had asked how high interest rates would go. He writes that he thought of himself as a “‘practical monetarist’ … in contrast with the more extreme and mechanistic monetarism that Milton Friedman had advocated.” But he understood that targeting the money supply meant letting interest rates go where they may. Volcker was not a thorough-going monetarist. Volcker concluded - and here’s where today’s central bankers may have to file his advice away for later this year - “our long-established pattern of adjusting short-term market interest rates by small increments … tended to be too little, too late to influence expectations … Now, after years of compromise and flinching from a head-on attack on inflation, it was time to act - to send a convincing message to markets and to the public.” Which he did in October 1979 by introducing, with unanimous support, new operating procedures in which the Fed started to target the money supply. This advertisement has not loaded yet, but your article continues below.

Keep at it volcker