Paul Volcker, the stogie-smoking former chairman of the Federal Reserve who pioneered the policies responsible for today’s sub-4% mortgage rates, died Sunday in New York at the age of 92.
Volcker, who was 6 feet, 7 inches tall and towered over the six presidents he served, inherited double-digit inflation when President Jimmy Carter appointed him to steer the Fed during the contentious post-Watergate period.
From there, Volcker helped change the country’s economic future.
“Paul Volcker stopped the vicious cycle we were experiencing and opened the door to lower inflation, interest rates and longer expansions,” said Diane Swonk, chief economist of Grant Thornton. “Volcker’s breaking the back of inflation in the early 1980s opened the door to the much more moderate inflation decades and long expansions that followed.”
Inflation, one of the biggest drivers of mortgage rates, peaked at 13% in 1980. That drove the average U.S. rate for a 30-year fixed mortgage to 18.6% that same year, as measured by Freddie Mac.
It was enough to crash housing markets in key regions of the nation. Today, that same Freddie Mac data series shows the rate is under 4%.
“His life exemplified the highest ideals – integrity, courage, and a commitment to do what was best for all Americans,” Fed Chairman Jerome Powell said in a statement on Monday.
Volcker tackled inflation by tightening monetary policy, eventually raising the benchmark rate to close to 20%. Some economists called it “shock therapy” for the economy.
Carter lost his bid for a second term largely because of economic issues that some believed Volcker could have solved by loosening the monetary valve.
“Paul was as stubborn as he was tall, and although some of his policies as Fed chairman were politically costly, they were the right thing to do,” former President Jimmy Carter said in a statement. “We are grateful for his service to our country.”
Volcker, the grandson of immigrants, was again picked for a clean-up mission by President-elect Barack Obama in 2008. As the nation teetered on the cliff of an economic reversal that could have rivaled the Great Depression, Obama asked Volcker to head a new Economic Recovery Advisory Board. At 81, Volcker came out of retirement to serve the nation.
Volcker pushed to bar deposit-taking banks from making speculative investments, a practice known as proprietary trading, and from investing in private-equity and hedge funds – a position that Obama described as “a simple and common-sense reform, which we’re calling the Volcker Rule – after this tall guy behind me.”
A weakened version of the Volcker Rule became part of the financial reforms of the 2010 Dodd-Frank law aimed at reducing the risk of another economic meltdown. Banks have argued it has restricted their profit potential, and the Trump administration is considering changes to it.
As one measure of Volcker’s influence, Swonk reminded her Twitter followers on Monday why the Fed’s annual Jackson Hole Economic Symposium, one of the most important financial gathers, is held in Wyoming’s Teton Mountain Range.
“The organizers of the event realized that they could get Chairman Volcker to attend the annual meeting if they held it in Jackson Hole, because of his love of fly fishing,” she said. “Been there ever since.”
