Here’s Karl Smith:
Volker’s clout on the FOMC grew the entire time and when he became Fed Chairman in 1979, he dropped the hammer.
. . .
The Fed drove the funds rate up from 5% in 1976 to 19% in 1981. I know, I know, Scott Sumner is scowling. Here is the growth rate of NGDP over the same period.
. . .
Trending upwards, towards 15%, through the 60s and 70s. Pausing in 1976 and then in two big slams going all the way to a low of 3% in 1982.
I don’t think many people doubt that the policies of the Volcker Fed drove interest rates up and inflation rates down during the early 1980s, but since the general topic of government debt is so contentious its worth reviewing.
I certainly “doubt that.” The increase in the fed funds rate from 5% in 1976 to 19% in 1981 was caused by easy money policies of Burns, Miller and Volcker, as I explain in this post. NGDP growth peaked at 19.2% in 1980:4 and 1981:1.
Then in the spring of 1981 Volcker got serious about inflation. The Fed adopted a tight money policy, and NGDP growth, inflation, and nominal interest rates all began declining, a process that would continue for decades.