Paul Volcker obituary: Fed chairman who waged war on inflation

Central bank boss went on to lead response to 2008 financial crisis under Barack Obama

Federal Reserve chairman Paul Volcker appears before the House Banking Committee in Washington in 1980.  Photograph: George Tames/The New York Times

Federal Reserve chairman Paul Volcker appears before the House Banking Committee in Washington in 1980. Photograph: George Tames/The New York Times


Paul Volcker, who helped shape US economic policy for more than six decades, most notably by leading the Federal Reserve’s brute-force campaign to subdue inflation in the late 1970s and early 1980s, died Sunday in New York. He was 92.

The death was confirmed by his daughter, Janice Zima, who did not specify the cause. Volcker had been treated for prostate cancer, which was diagnosed in 2018.

Volcker, a towering, taciturn and somewhat rumpled figure, arrived in Washington as America’s postwar economic hegemony was beginning to crumble. He would devote his professional life to wrestling with the consequences.

As a treasury department official under presidents John F Kennedy, Lyndon B Johnson and Richard M Nixon, Volcker waged a long, losing struggle to preserve the postwar international monetary system established by the Bretton Woods agreement.

As a senior Federal Reserve official from 1975-87, in addition to battling inflation he sought to limit the easing of financial regulation and warned that the rapid growth of the federal debt threatened the nation’s economic health.

In his last official post, as chairman of president Barack Obama’s Economic Recovery Advisory Board, formed in response to the 2008 financial crisis, he persuaded lawmakers to impose new restrictions on big banks – a measure known as the Volcker Rule.

Volcker interlaced his long stretches of public service with a lucrative career on Wall Street, most prominently as chief executive of the investment bank Wolfensohn.

His reputation for austere integrity also made him a popular choice as an independent arbiter. In one instance he oversaw the reclamation of deposits that Swiss banks had failed to return to the families of Holocaust victims.

Defining achievment

His defining achievement, however, was his success in ending an extended period of high inflation after president Jimmy Carter chose him to be the Fed’s chairman in 1979.

He prevailed by delivering shock therapy, driving the economy into a deep recession to persuade Americans to abandon their entrenched expectation that prices would keep rising rapidly.

The cost was steep. As consumers stopped buying homes and cars, millions of workers lost their jobs. Angry homebuilders mailed chunks of two-by-fours to the Fed’s marble headquarters in Washington. But Volcker managed to wring most inflation from the economy.

His victory inaugurated an era in which the leaders of both political parties largely deferred to the central bank, allowing technocrats to chart the course of monetary policy with little political interference.

Proud, confident and 6ft 7in, Volcker struck many as remote and intimidating. Those who knew him well said the gruff exterior concealed a shy man with a puckish wit. His first wife told a biographer that she had waited vainly for a proposal before she finally asked him if he wanted to marry.

Born the son of German immigrants in New Jersey he was famously frugal, favouring drugstore cigars and ill-fitting suits. In the 1960s, when the driver’s seat in his Nash Rambler collapsed, Volcker propped it up with a chair and continued to drive the car. As chairman of the Fed, he lived in an apartment building populated by George Washington University students and took his laundry to his daughter’s house in the Virginia suburbs.

National spotlight

His time in the national spotlight began in August 1979. Carter, struggling to salvage public confidence in his administration, decided to reshuffle his Cabinet, plucking the Fed chairman G William Miller to serve as treasury secretary. Volcker, who was then serving as president of the Federal Reserve Bank of New York, was not Carter’s first choice as a replacement.

Volcker was known to be frustrated with the Fed’s halfhearted efforts to curb inflation, leading Carter’s aides to warn that he might drive the economy into recession.

Meeting Carter in the Oval Office, Volcker slumped on a couch, a familiar cigar in hand, and gestured at Miller, who was in the room. “You have to understand,” Volcker said he told the president, “if you appoint me, I favour a tighter policy than that fellow.”

The harsh Fed policy no doubt contributed to Carter’s reelection defeat at the hands of Ronald Reagan; he had to campaign when interest rates were at their peak, and before the inflation fever had begun to break. Carter, in his memoirs, would offer a typically understated assessment: “Our trepidation about Volcker’s appointment was later justified.”

Unemployment rose to a peak of 10.8 per cent in November 1982 – higher than at any point during the recession that began in 2008 – but by then the benefits of the Fed’s campaign were beginning to appear. Inflation fell below 4 per cent in 1983, and Volcker’s critics were soon drowned out by a burgeoning chorus of admirers.

Some economists continued to argue that the Fed could have brought inflation under control more gently. Alan Greenspan, Volcker’s successor as Fed chairman, later described the policy as an excess of necessary medicine, although he added that it had been preferable to not doing enough.

In retrospect, it has also become clear that the developed world was on the cusp of an era of declining inflation, arriving as a result of the globalisation of manufacturing and capital markets.


But Volcker’s triumph was undeniable: inflation has remained under control ever since. In taking the job, Volcker strained his finances and his family life.

The job of chairman paid half as much as his post at the New York Fed, and Volcker’s wife at the time, Barbara Volcker, who struggled for much of her life from debilitating rheumatoid arthritis as well as diabetes, remained in New York to be near her longtime physician. (She died in 1998.) Their son, James, who was born with cerebral palsy, also remained in New York.

Volcker married Barbara Bahnson in 1954. After her death, he married Anke Dening, his longtime assistant, in 2010. Besides her and his daughter, he is survived by his son, James, and four grandchildren.

– Guardian Service/New York Times