Paul A.

Volcker, Fed Chairman Who

Waged War on Inflation, Is Dead at
92
Mr. Volcker helped shape American economic policy for decades, notably by leading the
Federal Reserve’s brute-force campaign to subdue inflation in the 1970s and ’80s.

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Paul Volcker in 1980, when he was the Federal Reserve Board chairman. He helped
shape American economic policy for more than six decades.Credit...George Tames/The
New York Times
By Binyamin Appelbaum and Robert D. Hershey Jr.
Published Dec. 9, 2019Updated Dec. 13, 2019
Paul A. Volcker, who helped shape American 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 ’80s, died on Sunday in New York. He was 92.

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

Mr. 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, Mr. Volcker waged a long, losing struggle to preserve
the postwar international monetary system established by the Bretton Woods
agreement.
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As a senior Federal Reserve official from 1975 to 1987, 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.”

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Mr. 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 &
Company.

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.
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Image
Mr. Volcker at his swearing-in in August 1979, with President Jimmy Carter and
Treasury Secretary G. William Miller. His harsh anti-inflation policies contributed to
Mr. Carter’s defeat by Ronald Reagan the next year.Credit...Associated Press
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.
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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 Mr. 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.

Ben S. Bernanke, the Fed’s chairman from 2006 to 2014, kept on his bookshelf one of
the chunks of wood that Mr. Volcker received during the anti-inflation campaign.
“He came to represent independence,” Mr. Bernanke said in an interview for this
obituary. “He personified the idea of doing something politically unpopular but
economically necessary.”

Proud, confident and 6-foot-7 in socks, Mr. 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.
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He was famously frugal, favoring drugstore cigars and ill-fitting suits. In the 1960s,
when the driver’s seat in his Nash Rambler collapsed, Mr. 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.
Image

Mr. Volcker outside the Federal Reserve in April 1980, addressing a crowd that was
protesting high interest rates. The prime rate peaked at 21.5 percent later that
year.Credit...Associated Press
His time in the national spotlight began in August 1979. Mr. 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. Mr. Volcker, who was
then serving as president of the Federal Reserve Bank of New York, was not Mr. Carter’s
first choice as a replacement.

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

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

In taking the job, Mr. 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 Mr.
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.
When Mr. Volcker arrived in Washington, the national inflation rate was exceeding 1
percent a month. (By comparison, in 2017 inflation was less than 2 percent for the whole
year.) Rapid and unpredictable inflation encourages spending while discouraging
investment, a combination that creates economic instability and, often, political
instability.
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Image

Mr. Volcker in 1971. Proud, confident and 6-foot-7, he struck many as remote and
intimidating. Those who knew him well said the gruff exterior concealed a shy man with
a puckish wit.Credit...George Stroud/Daily Express, via Getty Images
Henry C. Wallich, a Fed governor who had lived through the hyperinflation of Weimar
Germany and often told of paying 150 billion marks to use a neighborhood swimming
pool, was among those warning that the Fed was losing control.

Many economists still argued that the Fed could reduce inflation gently, without causing
a recession, by raising interest rates just enough to slow economic activity. But Mr.
Volcker said inflation had become a self-fulfilling prophecy. People had come to expect
prices and wages to rise, so they borrowed and spent more and demanded larger pay
increases, and prices and wages rose.

The Fed had been promising to crack down on inflation for more than a decade, but it
had repeatedly caved in to intense political pressure so as to avoid a recession. Mr.
Volcker decided a dramatic gesture was necessary to convince the public that this time
would be different.

“I wanted to move the story at least to the front page,” he told a biographer.

Channeling the Money

On Saturday, Oct. 6, 1979, Mr. Volcker held an evening news conference in the grand
boardroom at the Fed’s headquarters on Constitution Avenue. It was the first time in
memory that a Fed chairman had addressed the news media, and the Fed’s staff
scrambled to gather the press corps.

Pope John Paul II was visiting Washington; when CBS said that it didn’t have a spare
camera crew, Mr. Volcker’s spokesman persuaded the network to abandon the pontiff.
“Send your crew here,” he told a CBS producer. “Long after the pope is gone, you’ll
remember this one.”

Mr. Volcker’s message was that the Fed was declaring war on inflation. “The basic
message we tried to convey was simplicity itself,” he said later. “We meant to slay the
inflationary dragon.”
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To underscore the Fed’s determination, Mr. Volcker announced a significant change in

the conduct of monetary policy. Historically, the Fed had aimed to control interest rates
— the price of money. Under the new policy, he said that the Fed would instead aim to
control the supply of money. Limiting the money supply would cause interest rates to
rise, but the Fed would no longer aim for a specific increase. The central bank would
determine how much money was available; markets would set the price.

The change was part of a broader shift in economic policymaking toward a greater
reliance on financial markets. It marked the end of the postwar era in which disciples of
the British economist John Maynard Keynes had argued that governments could deftly
manage economic conditions, including interest rates.

An immediate result was that markets pushed interest rates a lot higher than Mr.
Volcker had anticipated. The prime rate, which banks charge their most creditworthy
customers, nearly doubled by Election Day 1980, peaking at 21.5 percent. Farmers on
tractors circled the Fed’s headquarters. Auto dealers sent the keys to cars they could not
sell. “Dear Mr. Volcker,” one builder scrawled on a wooden block with a knothole. “I am
beginning to feel as useless as this knothole. Where will our children live?”

Mr. Volcker later confessed to doubts, telling an interviewer in 2016 that he had worn a
path into his office carpet while waiting for inflation to surrender. And, early on, he
blinked: After tipping the economy into recession in early 1980, the Fed briefly took its
foot off the brakes.
But when inflation showed signs of accelerating, the foot slammed back down, and a
deeper recession began. Thereafter, Mr. Volcker was obdurate, insisting that the pain
was necessary and ultimately worthwhile.

Asked by a reporter how much unemployment he was willing to accept, Mr. Volcker
responded, “My basic philosophy is over time we have no choice but to deal with this
inflationary situation.”
Image

Mr. Volcker with President Reagan in the Oval Office in July 1981. Their relationship
later soured when Mr. Volcker criticized the government’s growing deficits and reliance
on foreign investors.Credit...Scott Applewhite/Associated Press
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The harsh Fed policy no doubt contributed to Mr. Carter’s re-election 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. Mr. 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 percent 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 percent in 1983, and Mr.
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, Mr. 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 globalization of manufacturing and
capital markets.

But Mr. Volcker’s triumph was undeniable: Inflation has remained under control ever
since.

“Paul was as stubborn as he was tall,” Mr. Carter said in a statement on Monday
morning, “and although some of his policies as Fed chairman were politically costly,
they were the right thing to do. His strong and intelligent guidance helped to curb
petroleum-driven inflation, easing a strain on all Americans’ budgets.”

President Reagan appointed Mr. Volcker to a second term as board chairman in 1983.
But the relationship soon soured. Mr. Volcker was increasingly vocal in his criticism of
the federal government’s growing deficits and reliance on foreign investors. In his
austere view, there were no shortcuts to economic growth. The government needed
budget discipline as well as low inflation.

The White House, for its part, grew increasingly unhappy with Mr. Volcker’s focus on
inflation. In the summer of 1984, as Reagan campaigned for re-election, Mr. Volcker
was summoned to meet the president at the White House. Mr. Volcker recounts in his
memoirs, published in October 2018, that Reagan sat silently while his chief of staff,
James A. Baker III, delivered a blunt message: “The president is ordering you not to
raise interest rates before the election.”
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Mr. Volcker was “stunned,” he wrote, but he maintained his composure and left without
giving a reply. He added that he had not planned to raise rates before the election, and
he did not do so.

Mr. Volcker and Mr. Baker also clashed over financial regulation. The Fed played the
leading role in overseeing the nation’s largest banks; in Mr. Volcker’s view, they were
getting into enough trouble already.

One of the nation’s largest banks, Continental Illinois, failed in 1984 after a long run of
reckless lending, particularly for oil exploration, prompting the former Fed chairman
William McChesney Martin to observe acidly that Mr. Volcker was “very good on
monetary policy” and “a complete flop on bank supervision.”
The largest American banks, mostly based in New York, also got into trouble by lending
heavily to Latin American countries. As the Fed raised interest rates, those countries
struggled to make interest payments, precipitating a debt crisis. Mr. Volcker played a
leading role in devising bailouts for the countries and the banks.

But the big New York banks, with the support of the Reagan administration, kept
pressing for permission to re-enter the business of securities trading for the first time
since the Great Depression.

Mr. Volcker delayed consideration of the banks’ requests, but the administration forced
his hand by appointing new members to the Fed’s board. In early 1986, those new
members outvoted Mr. Volcker. He threatened to resign but decided to serve out his
second term.

On June 1, 1987, Mr. Volcker went to the White House to say that he did not want a
third term; Reagan promptly telephoned Mr. Greenspan to offer him the job.
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Over the next two decades, the Fed maintained firm control of inflation, but
policymakers otherwise ignored Mr. Volcker’s advice, allowing the national debt to
balloon. The government also continued to reduce regulation of the financial industry.
The long era of growth that began with Mr. Volcker’s victory over inflation would come
to a crashing end in 2008, bringing him back to Washington one last time.

Jersey Boy
Paul Adolph Volcker Jr. was born on Sept. 5, 1927 — Labor Day — in Cape May, on the
southern tip of New Jersey, where his father was the city manager. Paul moved as a
child to Teaneck, a leafy North Jersey suburb, which had recruited his father to keep the
town from bankruptcy.

Mr. Volcker credited his father with inspiring his own career as a public servant.

Nicknamed Buddy by his family, Mr. Volcker had three older sisters — like him, they
were all more than six feet tall — and all were so determined not to spoil him that “they
leaned over backward to abuse me,” he told a biographer.

A reserved youth, he became a top student and, thanks to his height, a member of the
varsity basketball team at Teaneck High School. Journalists seeking tales of teenage
high jinks have come up empty-handed.

“When my buddies went shooting out streetlights, I said goodbye,” Mr. Volcker recalled
in an interview for this obituary in 2010.
After graduating from high school in May 1945, with the end of World War II still
months away, Mr. Volcker tried to enlist in the Army but was rejected because he was an
inch too tall. He decided to apply to Princeton University, despite his father’s warning
that the other students there were very smart. Mr. Volcker was soon getting top marks.
He would later observe wryly of his classmates, “They weren’t as smart as my father
thought.”

At Princeton, Mr. Volcker pursued a new major that combined the study of economics,
politics and history. Searching for a thesis topic his senior year, he decided to write
about the Federal Reserve. He produced a 250-page analysis entitled “The Problems of
Federal Reserve Policy Since World War II.” It argued that the Fed needed to act more
firmly to control inflation.
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His adviser, Frank D. Graham, encouraged him to pursue a graduate degree in

economics. Mr. Volcker applied both to the Harvard Law School and to Harvard’s
Littauer School of Public Administration (later the John F. Kennedy School of
Government), which he chose when it offered a full ride.

Two years later, Mr. Volcker had a master’s degree and had finished course work for a
Ph.D. in political economy when he won a Rotary Club scholarship for foreign study. He
decided to write his doctoral thesis at the London School of Economics. In fact, he wrote
no thesis but had a grand time traveling the Continent, sometimes on a bicycle, forging
relationships that later proved valuable.
Image
Mr. Volcker in 1982. He was famously frugal, favoring drugstore cigars and ill-fitting
suits.Credit...George Tames/The New York Times
He returned home to become a staff economist at the New York Fed, then was recruited
by Chase Manhattan, where he served as special assistant to David Rockefeller, the
bank’s vice chairman at the time, and on a commission advising the Treasury
Department in Washington.
In 1962, Robert V. Roosa, a mentor to Mr. Volcker at the New York Fed who had become
a Treasury official in the Kennedy administration, gave Mr. Volcker his first job in
Washington, as an adviser to the Treasury. He was later a deputy under secretary.

Mr. Volcker, raised in a Republican family, said he joined the Democratic Party because
he had been inspired as a young man by the politician and diplomat Adlai E. Stevenson
II, but he saw himself primarily as a civil servant. He would never realize an ambition to
become Treasury secretary, in part because several presidents would conclude that he
was insufficiently political. But his reputation as a technocrat meant that as presidents
came and went, Mr. Volcker stayed put.

“One of my old friends from abroad once told me — I think he meant it as an ironic
compliment — that he thought of my career as a long saga of trying to make the decline
of the United States in the world respectable and orderly,” Mr. Volcker said.
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As a Treasury official under three presidents, Mr. Volcker struggled to preserve the
postwar international monetary system that the United States and its allies had created
in 1944 at the Bretton Woods resort in New Hampshire. Under the agreement, nations
fixed the values of their currencies in dollars, and the United States promised to
exchange dollars for gold at $35 an ounce.

The agreement was a mainstay of the postwar effort to foster global economic
cooperation, which in turn was considered a powerful means of discouraging military
conflict. But during the 1960s, the fixed rates became increasingly untenable because of
the resurgence of the German and Japanese economies.

In 1971, Mr. Volcker played a key role in persuading Nixon to suspend the Bretton
Woods agreement by closing the “gold window,” meaning the United States would no
longer guarantee the value of the dollar.

Mr. Volcker hoped to negotiate a new set of fixed exchange rates. Instead, the dollar was
allowed to float, leaving markets to determine the value of the dollar in British pounds
or Japanese yen.

This change was celebrated by many economists as a key step in the deregulation of
financial markets. Mr. Volcker long regretted it for the same reason. He foresaw,
correctly, that the absence of an international system would make it easier for other
nations to manipulate their currencies. And he would go on fighting, with little success,
to create an alternative system for regulating exchange rates — an idea that has attracted
some new interest since the 2008 financial crisis.
Image
Mr. Volcker, left, with Alfred Hayes, in 1975. Mr. Volcker succeeded Mr. Hayes as head
of the Federal Reserve of New York that year.Credit...Barton Silverman/The New York
Times
Mr. Volcker left the Treasury in 1974, intending to return to Wall Street.

Instead, Arthur F. Burns, the Fed’s chairman, asked him to take the top job at the New
York Fed. It was a powerful position: The bank was the Fed’s operational arm, and its
president served as vice chairman of the Fed’s policymaking committee.
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Mr. Volcker, a dedicated fly fisherman, headed out on a vacation to clear his mind, then
called collect from a pay phone to take the job.

At the New York Fed he would watch with growing frustration as Mr. Burns and then
Mr. Miller failed to deliver on promises of tough measures to rein in inflation. It would
be another four years before Mr. Volcker had his own chance.

After Mr. Volcker stepped down from the Fed in 1987, at age 59, he returned to a
financial industry that was being transformed by deregulation.

Paydays on Wall Street

At first he took a teaching post at Princeton and a part-time role at Wolfensohn, an
investment banking firm that cultivated a reputation for providing disinterested advice.
Within a few years he was running the firm. He made $89,500 in his final year at the
Fed (about $203,000 in today’s money). At Wolfensohn, he earned more than a million
dollars a year (about $3.5 million today). When Wolfensohn was acquired in 1995, he
earned more in one day than he had in 30 years of public service.

Mr. Volcker also agreed to serve as unpaid chairman of the National Commission on the
Public Service, a nonprofit organization founded in 1987 to encourage private-sector
leaders to serve in government. He later described its failure to win support for civil
service changes, like higher pay, as “probably my biggest regret.”

During the 1990s and 2000s, Mr. Volcker found his services as a chairman of public
commissions in demand: He investigated the United Nations’ oil-for-food program in
Iraq, corruption at the World Bank and the failings of Enron’s auditor, the Arthur
Andersen accounting firm.

Probably his most contentious role was as chairman of a committee created in 1996 to
mediate the claims of Holocaust victims and their families against Swiss banks. In some
cases the banks had actively impeded efforts to reclaim money that had been deposited
before World War II.
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Image
Mr. Volcker was the chairman of a committee created in 1996 to mediate the claims of
Holocaust victims and their families against Swiss banks. The process resulted in a
settlement of $1.25 billion.Credit...David Silverman/Reuters
“There was a feeling of failed justice on the Jewish side,” Mr. Volcker said of the process,
which resulted in a settlement of $1.25 billion. “And on the Swiss side, a feeling of unfair
criticism. I think I was genuinely neutral.”

Even after making a fortune on Wall Street, Mr. Volcker never lost his distaste for
bankers, whom he often criticized as avaricious and fond of risk-taking at the public’s
expense.

In a 2005 speech, Mr. Volcker, who had long taken a dim view of the debt-fueled
expansion of the American economy, warned of a looming financial crisis. “Baby
boomers have been spending like there is no tomorrow,” he told an audience at Stanford
University. “Big adjustments will inevitably come.”

After the crisis came in 2008, Mr. Obama named Mr. Volcker to an advisory role, but
the embrace was lukewarm. Most of the president’s advisers were veterans of the pro-
deregulation Clinton administration.

Mr. Volcker, sensing the moment, began to campaign publicly for stronger financial
regulation.

“Wake up, gentlemen,” he lectured bankers at a conference in December 2009. “I can

only say that your response is inadequate. I wish that somebody would give me some
shred of neutral evidence about the relationship between financial innovation recently
and the growth of the economy.”

He added that it was hard to think of a worthwhile financial innovation since the A.T.M.

Mr. Volcker found a more receptive audience among congressional Democrats. Judging
the Obama administration’s initial proposal to overhaul regulation to be too weak, he
lobbied for a new measure that would restrict risk-taking by the largest banks. The
White House was forced by its allies to acquiesce.
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Image

Mr. Volcker and President Barack Obama in 2010. His last official post was as chairman
of Mr. Obama's Economic Recovery Advisory Board, formed in response to the 2008
financial crisis.Credit...Doug Mills/The New York Times
On Jan. 21, 2010, Mr. Obama announced a late change to his plan, which had already
passed the House. “I’m proposing a simple and common-sense reform which we’re
calling the ‘Volcker Rule,’ after this tall guy behind me,” he said, pointing at Mr. Volcker,
who loomed over the president’s other advisers.

The rule restricts banks from making investments that are not intended to benefit
customers but rather only to increase the bank’s bottom line. The Trump administration
has said that it plans to loosen those strictures as part of a broader review of post-crisis
financial regulation.

Mr. 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.

Asked in the 2010 interview for this obituary about mistakes he had made, Mr. Volcker
cited a personal rather than a professional one.

“The greatest strategic error of my adult life was to take my wife to Maine on our
honeymoon on a fly-fishing trip,” he said, referring to his first marriage.

For his second marriage, the honeymoon was in the Virgin Islands.
Mr. Volcker, who long resisted entreaties to write a memoir, finally published an
account of his life in October 2018, entitled “Keeping at It: The Quest for Sound Money
and Good Government.” He said he had agreed to write the book to call attention to
what he described as a crisis: “a breakdown in the effective governance of the United
States.”
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The government, he said, has lost the ability to address even the most obvious
problems, like the need for better infrastructure.
Image

Mr. Volcker in 2013 in his offices in New York. In 2018 he published an account of his
life, entitled “Keeping at It: The Quest for Sound Money and Good
Government.”Credit...Robert Caplin for The New York Times
“We’re in a hell of a mess in every direction,” he said in an interview with The New York
Times in 2018. “Respect for government, respect for the Supreme Court, respect for the
president, it’s all gone.”

In Mr. Volcker’s view, a key cause of this breakdown is a lack of qualified and committed
public servants. In his memoir, he is particularly critical of his alma mater, Princeton,
and other elite institutions for failing to prepare students for careers in public service.

“My plea is very simple,” he said. “Good policy is dependent on good management.”

He expressed the hope that it was not too late to restore trust in government, but he
closed on a characteristically sober note, writing, “It will not be easy.”