The Transfer of The Responsibility of Inflation Rate from The White House to The Federal Reserve System

“Paul Volcker, whom Carter appointed chairman of the Fed, made stopping inflation his main goal, even if it took inducing a recession to achieve it. Rather than slowing the economy the usual way, by jacking up interest rates, Volcker used a different approach, having the Federal Reserve System tightly control the growth in the money supply, largely through increases in the requirements for bank reserves.” (Pg 329)

The 1970’s was the most difficult age to control the political affairs. Many political scandals, such as the Watergate, were revealed in the beginning of the 1970’s, and people disappointed the government and lost their interest in the politics. The voting percentage gradually decreased; 60 percent of the electorate during the 1950’s and 1960’s, but it dropped to 55 percent in 1972 and 54 percent in 1976. Thus, the presidents, Gerald Ford and James Carter, tried to restore political trust. However, its economy was in the recession, too. The unemployment rate and the inflation rate raised together, called “stagflation”. President Carter straggled to stop lowering the inflation rate to promote deregulation, but it was not so successful. Thus he entrust this control to the Fed chairman, Paul Volcker, whom approach to lower the inflation rate was unusual. Moreover, diplomacy between the Soviet Union wasn’t healthy due to the Soviet Union’s invasion of Afghanistan.