The Volcker Bull? I have always felt that Paul Volcker was an instrumental player in the development of the U. S. bull market of the 80s and 90s. There were others, of course, but Volcker was significant. So I went back to the St Louis--Fed homepage and ordered the historical discount rate changes which go back to the 1930s. I had one other reason. I wanted to share Volcker's actions of 1980, 1981, and 1982 with the readers of this thread. In addition, some of the things we have talked about today remind me of the past. For example, low interest rates in Japan with nothing happening.
The table below shows Volcker's Fed discount rate changes from 1979 to 1982. Inflation was embedded in the U. S. economy and our way of thinking in that era--something you see the FOMC hinting at in their meeting minutes of today. You may also note that 1980 was an election year with Reagan eventually defeating Carter. Finally, take note of the change amounts--generally one point at a time. No 1/4 point changes here. Volcker was trying to choke inflation out of the U. S. economy and our way of thinking.
You can look at the Fed's 1980 actions in two ways. I remember the Fed was accused of doing some window dressing for Carter during the campaign. The Fed's actions could support that view. The other view was that the Fed just underestimated the persistence of inflation, droped rates too early, realized it, and put them back up as soon as it realized its mistake.
7/20/1979---------------------10
8/17/1979---------------------10.5
9/19/1979.............................11
10/8/1979 -------------------12
2/16/1980---------------------13
5/28/1980.............................12
6/13/1980.............................11
7/28/1980............................ 10
9/26/1980.............................11
11/17/1980...........................12
12/4/1980 ...........................13
5/5/1981...............................14
11/2/1981.............................13
12/4/1981.............................12
7/20/1982.............................11.5
8/2/1982...............................11
8/16/1982.............................10.5
8/27/1982.............................10
10/12/1982.............................9.5
11/22/1982.............................9
12/14/1982.............................8.5
From December 1980 to November 1981, Volcker and the Fed were unrelenting. It felt to me that Volcker had grabbed the country by the throat and would not let go until he choked inflation out of it. The year 1981 seemed like an incredibly long year. After rates began coming down at the end of 1981, I believe money supply was increasing rapidly. However, no one was using it. There was no velocity.
After the fifth rate drop, the bull market finally started. I seem to rember 8/16/82 as the start of the bull market. Volcker and his Fed, for all intents and purposes, had killed the inflationary spiral. However, it can be argued that lower interest rates did not substantially affect the economy on their own. Something that makes me think of Japan now. At this time, the U. S. also had massive tax cuts and initiated an era of massive deficit spending. I believe all three pulled the U. S. from the abyss. |
