Final Project Milestone Three: Monetary Policies
The Special Credit Restraint Program (SCRP) had been introduced in 1980.
Interest rates and real GDP growth were both extremely volatile in in the early 1980’s
.Paul Volcker monetary policy helped reduce inflation rates and bring economic growth back to the nation.
Monetary Policy Actions
The SCRP had made new requirements for banks to meet in order to meet reserve requirements. Discounts rates were also raised, and banks were required to hold loan growth to a certain rate.
Extending consumer credit was highly discouraged.
The Fed was using Contractionary monetary policy early in the 1980’s.
Paul Volcker’s Monetary policy of raising interest rates slowed down inflation.
Fig 1: Federal Funds rate compared to inflation
Monetary Policy Impact
The Monetary policies set into play starting in October 1979 took control of M1 growth and recovered an economy that was in a nose dive.
M1 Growth saw a declining rate from 1980 through 1982 and then continuing throughout the decade.
The Perseverance of The Federal Reserve Chairman saw inflation rates fall as well as unemployment rates through the early 1980’s.
Friedman, Benjamin (April 1988) LESSONS ON MONETARY POLICY FROM THE 1980s. Retrieved from, https://www.nber.org/papers/w2551.pdf
Hetzel, Robert (1986) MONETARY POLICY IN THE EARLY 1980s. Retrieved from, https://www.richmondfed.org//media/richmondfedorg/publications/research/economic_review/1986/pdf/er720202.pdf
Medley, Bill (November 22, 2013) Volcker’s Announcement of Anti-Inflation Measures. Retrieved from, https://www.federalreservehistory.org/essays/anti_inflation_measures
Sablik, Tim (November 22, 2013) Recession of 1981–82. Retrieved from, https://www.federalreservehistory.org/essays/recession_of_1981_82
Scott, Robert & Weller, Christian (January 1, 2001) FED UP-The Federal Reserve must lower interest rates now to avoid a recession, rising unemployment. Retrieved from, https://www.epi.org/publication/issuebriefs_ib148/