Word: volckerism
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...keeping inflation in check will rest, as it has for the past four years, largely on the shoulders of Federal Reserve Chairman Paul Volcker. Business and financial leaders cheered Reagan's reappointment of Volcker two weekends ago as a sign that the Administration is determined to hold the line on prices. The financial markets had scored big gains in anticipation of the reappointment, but after it became official, the rally cooled off. The Dow Jones industrial average declined one point last week, to close at 1241.69. Investors are cautious because they recognize what a tough assignment is facing Volcker...
Only a couple of months ago, he had a lot of company in his opposition to the Princeton-educated, cigar-chomping, 6-ft. 7½-in. Volcker. In his fierce determination to conquer inflation, Volcker restricted the growth of the U.S. money supply so sharply that interest rates rose above 20%. The policy worked, but many thought it contributed mightily to the most punishing recession since World War II. The depth and duration of the slump put a severe strain on Volcker's relations with the Reagan Administration, cool to begin with. The Chairman, a nominal Democrat...
...financial community, however, Volcker became a hero. Bankers and brokers applauded him for sticking with his tight-money policy until the recession had tamed inflation, slashing the annual rate of price increases from 13% at the beginning of his term to less than 4% now. Then, in the nick of time last summer, Volcker loosened up enough to set the stage for a recovery that now looks more vigorous every week...
...Volcker's first term was due to expire Aug. 5, and once Administration officials began to think in earnest about a replacement, they concluded that anyone else would take too long to match Volcker's towering prestige. The only other name seriously considered was that of Economist Alan Greenspan, who professed himself an admirer of Volcker and vowed to continue the Fed Chairman's policies. One after another, Volcker's former critics began urging his reappointment. The last holdout, Presidential Counsellor Edwin Meese, finally came around last week. By then, the only question left...
...factor was a lingering resentment over Volcker's disagreements with supply-side economics. Only last week a couple of the President's California "kitchen cabinet" friends warned Reagan that he could not trust Volcker in an election year. Says one Administration official: "The White House was petrified by fear that Volcker would do the same thing to Reagan in 1984 that he did to Carter in 1980: push interest rates up at a critical time. Now it is convinced that it won't happen." In addition, Reagan was reluctant to look as if he had been rushed...