It was necessarily strong medicine.
Paul Adolph Volcker (born September 5, 1927), economist, is best-known as the Chairman of the Federal Reserve under United States Presidents Jimmy Carter and Ronald Reagan (from August 1979 to August 1987). Educated at Princeton, Harvard and the London School of Economics, from 1969 to 1974 Mr. Volcker served as under-secretary of the Treasury for international monetary affairs. He played an important role in the decisions surrounding the US decision to suspend gold convertibility in 1971, which resulted in the collapse of the Bretton Woods system. In general he acted as a moderating influence on policy, advocating the pursuit of an international solution to monetary problems. After leaving the US Treasury, he became president of the New York Federal Reserve Bank from 1975 to 1979.
Volcker's Fed is credited with ending the United States' inflation crisis of the early 1980s. They achieved this by constricting the money supply through a sharp increase in interest rates. By 1985, inflation was considerably lowered from 9 percent in 1980 to 3.2 percent in 1983. This disinflation was predictably accompanied by a decrease in GDP growth (i.e. a recession), and by an increase in unemployment, which rose to the highest levels since World War II. Both GDP and unemployment returned to normal levels when the inflation problem had been solved and interest rates were lowered, however.
That is debatable. Raising rates was necessary, but he went too high and far too long.
Agreed. The Fed has little or no control over long term interest rates. Long term rates are governed by inflation, which in turn is heavily influenced by growth in money supply. Now money supply can be reduced to some degree by increasing short term interest rates. But short term rates have to really go up to lower money supply, which then can lower inflation, which then can lower long term interst rates.
Reagan's deficit spending was a great boost to economic growth, but it did nothing to lower rates and curb inflation.
Oil prices crashed in 1982, and again in 1986. Just might have had something to do with it.