Paul A. Volcker, who helped shape American economic policy for more than six decades, most notably by leading the Federal Reserve’s brute-force campaign to subdue inflation in the late 1970s and early ’80s, died on Sunday in New York. He was 92.
The death was confirmed by his daughter, Janice Zima.
Mr. Volcker, a towering, taciturn and somewhat rumpled figure, arrived in Washington as America’s postwar economic hegemony was beginning to crumble. He would devote his professional life to wrestling with the consequences.
As a Treasury Department official under Presidents John F. Kennedy, Lyndon B. Johnson and Richard M. Nixon, Mr. Volcker waged a long, losing struggle to preserve the postwar international monetary system established by the Bretton Woods agreement.
As a senior Federal Reserve official from 1975 to 1987, in addition to battling inflation, he sought to limit the easing of financial regulation and warned that the rapid growth of the federal debt threatened the nation’s economic health.
In his last official post, as chairman of President Barack Obama’s Economic Recovery Advisory Board, formed in response to the 2008 financial crisis, he persuaded lawmakers to impose new restrictions on big banks — a measure known as the “Volcker Rule.”
Mr. Volcker interlaced his long stretches of public service with a lucrative career on Wall Street, most prominently as chief executive of the investment bank Wolfensohn & Company.
His reputation for austere integrity also made him a popular choice as an independent arbiter. In one instance he oversaw the reclamation of deposits that Swiss banks had failed to return to the families of Holocaust victims.
His defining achievement, however, was his success in ending an extended period of high inflation after President Jimmy Carter chose him to be the Fed’s chairman in 1979.
He prevailed by delivering shock therapy, driving the economy into a deep recession to persuade Americans to abandon their entrenched expectation that prices would keep rising rapidly.
The cost was steep. As consumers stopped buying homes and cars, millions of workers lost their jobs. Angry homebuilders mailed chunks of two-by-fours to the Fed’s marble headquarters in Washington. But Mr. Volcker managed to wring most inflation from the economy.
His victory inaugurated an era in which the leaders of both political parties largely deferred to the central bank, allowing technocrats to chart the course of monetary policy with little political interference.
Ben S. Bernanke, the Fed’s chairman from 2006 to 2014, kept on his bookshelf one of the chunks of wood that Mr. Volcker received during the anti-inflation campaign.
“He came to represent independence,” Mr. Bernanke said in an interview for this obituary. “He personified the idea of doing something politically unpopular but economically necessary.”
Proud, confident and 6-foot-7 in socks, Mr. Volcker struck many as remote and intimidating. Those who knew him well said the gruff exterior concealed a shy man with a puckish wit. His first wife told a biographer that she had waited vainly for a proposal before she finally asked him if he wanted to marry.
He was famously frugal, favoring drugstore cigars and ill-fitting suits. In the 1960s, when the driver’s seat in his Nash Rambler collapsed, Mr. Volcker propped it up with a chair and continued to drive the car. As chairman of the Fed, he lived in an apartment building populated by George Washington University students and took his laundry to his daughter’s house in the Virginia suburbs.
His time in the national spotlight began in August 1979. Mr. Carter, struggling to salvage public confidence in his administration, decided to reshuffle his cabinet, plucking the Fed chairman G. William Miller to serve as Treasury secretary. Mr. Volcker, who was then serving as president of the Federal Reserve Bank of New York, was not Mr. Carter’s first choice as a replacement.
Mr. Volcker was known to be frustrated with the Fed’s halfhearted efforts to curb inflation, leading Mr. Carter’s aides to warn that he might drive the economy into recession.
Meeting Mr. Carter in the Oval Office, Mr. Volcker slumped on a couch, a familiar cigar in hand, and gestured at Mr. Miller, who was in the room. “You have to understand,” Mr. Volcker said he told the president, “if you appoint me, I favor a tighter policy than that fellow.”
In taking the job, Mr. Volcker strained his finances and his family life.
The job of chairman paid half as much as his post at the New York Fed, and Mr. Volcker’s wife at the time, Barbara Volcker, who struggled for much of her life from debilitating rheumatoid arthritis as well as diabetes, remained in New York to be near her longtime physician. (She died in 1998.) Their son, James, who was born with cerebral palsy, also remained in New York.
Mr. Volcker married Barbara Bahnson in 1954. After her death, he married Anke Dening, his longtime assistant, in 2010. Besides her, he is survived by his son, James; a daughter, Janice Volcker Zima; a sister, Virginia Streitfeld; and four grandchildren.
When Mr. Volcker arrived in Washington, the national inflation rate was exceeding 1 percent a month. (By comparison, in 2017 inflation was less than 2 percent for the whole year.) Rapid and unpredictable inflation encourages spending while discouraging investment, a combination that creates economic instability and, often, political instability.
Henry C. Wallich, a Fed governor who had lived through the hyperinflation of Weimar Germany and often told of paying 150 billion marks to use a neighborhood swimming pool, was among those warning that the Fed was losing control.
Many economists still argued that the Fed could reduce inflation gently, without causing a recession, by raising interest rates just enough to slow economic activity. But Mr. Volcker said inflation had become a self-fulfilling prophecy. People had come to expect prices and wages to rise, so they borrowed and spent more and demanded larger pay increases, and prices and wages rose.
The Fed had been promising to crack down on inflation for more than a decade, but it had repeatedly caved in to intense political pressure so as to avoid a recession. Mr. Volcker decided a dramatic gesture was necessary to convince the public that this time would be different.
“I wanted to move the story at least to the front page,” he told a biographer.