In any case, however, serious analyses of the Reagan-era business cycle place very little weight on Reagan, and emphasize instead the role of the Federal Reserve, which sets monetary policy and is largely independent of the political process. At the beginning of the 1980s, the Fed, under the leadership of Paul Volcker, was determined to bring inflation down, even at a heavy price; it tightened policy, sending interest rates sky high, with mortgage rates going above 18 percent. What followed was a severe recession that drove unemployment to double digits but also broke the wage-price spiral. Then the Fed decided that America had suffered enough. It loosened the reins, sending interest rates plummeting and housing starts soaring. And the economy bounced back. Reagan got the political credit for “morning in America,” but Mr. Volcker was actually responsible for both the slump and the boom.
Posted on: Mon, 05 Jan 2015 22:22:47 +0000
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