Volcker Shock: Fed Raises Rates to 20% to Break Double-Digit Inflation

Fed Chairman Paul Volcker announced a major shift in monetary policy on October 6, 1979, targeting money supply growth rather than interest rates and allowing the federal funds rate to rise to nearly 20% by 1981. The resulting recession drove unemployment to 10.8% by December 1982, the highest since the Great Depression. Volcker maintained the tight policy despite intense political pressure from both the Carter and Reagan administrations, ultimately breaking the inflationary spiral that had plagued the economy since the early 1970s.