1984
In 1984 Paul A. Volcker was the Chairman of the Federal Reserve. The Federal Reserve practiced a contractionary monetary policy at the end of 1982 and beginning of 1983 to decrease the inflation rate, which was 6.2 % in 1982. This policy took the form of increasing the maximum target rates from 8.5 % in December 1982 to 9.625 % in July 1983. The Federal Reserve practiced an expantionary monetary policy by decreasing the maximum target rates to 9.5 % in August 1983. Another contractionary monetary policy took place in when the interest rates increased to 10 % in January 1984 and reached 11.75 % in August. In September interest rates started declining until they reached 8.25 % in January 1985. The minimum target rates behaved similar to the maximum rates. The minimum target rate was 9.5 % in May 1983 and decreased to 9.25% in August. The minimum rates started rising in January 1984 until they reached 11.5 % in July 1984. They started declining in 1985 until they reached 7.75 % in July 1985. During and before the 1980's the Federal Reserve targeted the money supply (M1, M2) instead of the Fed. Funds rate. However in 1985 the money supply shifted badly away from the set target and the Federal Reserve could not control it again. Thereafter, Fed. Funds Rate started becoming the main target instead of the money supply.
The discount rates started at 8.5 % in January 1983, increased to 8.87 % in April 1984 and 9.0 % in May 1984. The discount rates stayed constant at 9 % until October 1984 and decreased to 8.37 % in December 1984. The decrease in discount rates shows concern over economic weakness, and the increase shows concern over inflation. In 1984, the inflation rate was 4.2 % compared to 3.2 % in 1983. Unemployment decreased by 2.1 % (9.6 % in 1983 to 7.5% in 1984). Unemployment kept on decreasing slowly after 1984. The decrease in unemployment took place due to the growth in the economy; even though, contractionary monetary policies took place. Real GDP growth rate was 7.0% compared to 4.8 % in OECD. GDP growth was higher than the historical average (3.6%) and also higher than 1983 and 1985.
*The data for this paper is from EconMagic