Paul Volcker, ex-Fed chairman and Teaneck High grad who transformed economy, dies at 92

Paul Volcker, the former Federal Reserve chairman who grew up in Teaneck, loomed larger than life — not only in height, but in the world of economics.

Volcker, who as Federal Reserve chairman in the early 1980s elevated interest rates to historic highs and triggered a recession as the price of quashing double-digit inflation, died Sunday at age 92. 

Volcker took charge of the Fed in August 1979, when the U.S. economy was in the grip of runaway inflation. Consumer prices skyrocketed 13% in 1979 and then by the same pace again in 1980.

Working relentlessly to bring prices under control, Volcker raised the Fed’s benchmark interest rate from 11% to a record 20% by late 1980 to try to slow the economy’s growth and thereby shrink inflation.

Former Teaneck Mayor Paul Ostrow said he had the opportunity to meet Volcker three times and speak with him once. 

"He was a gentleman," Ostrow said. "He was one of the most brilliant financiers I ever saw in my adult life in terms of controlling inflation and keeping the Fed on track."

A towering 6 feet, 7 inches tall, Volcker played basketball for Teaneck High School, though Ostrow says it was one area where he did not excel. 

Volcker's father was the township manager in Teaneck from the 1930s until the 1950s, said Councilman Keith Kaplan. Kaplan recently met with Volcker to talk about his dad when collecting documents for the township's 125th anniversary.

"He was very involved with Teaneck from growing up here," Kaplan said. "He never forgot his roots and the lessons he learned."

In a statement Monday, former President Jimmy Carter, who had chosen Volcker to be Fed chairman, called him a “giant of public service."

“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,” Carter said.

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In the early 1980s, Volcker was vilified by the public for having triggered a severe recession in order to curb runaway price increases. Home builders put postage stamps on bricks and on 2-by-4 wooden planks and mailed them to the Fed to protest how super-high interest rates had wrecked their businesses.

Auto dealers, stuck with lots full of unsold cars, did the same with car keys. Angry farmers, struggling with high debts, drove their tractors to Washington and blockaded the Fed’s headquarters.

One of the mailed 2-by-4s ended up with an enduring legacy at the Fed: David Wilcox, a young staffer under Volcker who later rose to direct the Fed's research and statistics division, said he received one of the 2-by-4s from Larry Slifman, a former senior economist in the division, and kept it on his desk until his retirement last year. Wilcox said he held onto it “as a constant reminder of how vitally important it is that no major central bank ever lose control of inflation again, creating the need for someone like Volcker to do the incredibly courageous things he did.”

David Jones, an economist and author of several books on the Fed, ranks Volcker above all other chairmen since World War II.

“Volcker was transformative in terms of Fed policy," Jones said. “We are still enjoying the benefits of his success."

By sticking with his policies in the face of ferocious opposition, Volcker implicitly asserted the Fed's independence from political and public interference.

Throughout its history, the Fed has been seen as needing to operate independently in order to properly carry out its key functions of maximizing employment and stabilizing prices. In the past three years, President Donald Trump has challenged that independence with his frequent attacks on the Fed and his demands that it cut rates more aggressively.

The pain of the recession he helped cause eventually produced the desired results: Inflation receded. Once it did, Volcker’s Fed began lowering interest rates. And the economy rebounded vigorously enough for President Ronald Reagan to declare the arrival of “Morning in America’’ on his way to a landslide victory in the 1984 presidential election. Volcker left the Fed in 1987, succeeded by Alan Greenspan.

The Volcker-led victory over inflation is widely credited with beginning what economists call the “Great Moderation’’ — more than two decades of mostly steady economic growth, relatively low unemployment and modest price increases. The Great Moderation ended with the Great Recession of 2007-2009.

Volcker had spent most of his career in the public sector — at the Treasury Department, the Federal Reserve Bank of New York and the Fed board in Washington.

Perpetually rumpled, Volcker favored cheap cigars and bad suits. John Connally, a slick Texan who was Volcker’s boss at the Treasury in the early 1970s, once threatened to fire him if he didn’t get a haircut and improve his wardrobe.

Despite his personal austerity, Volcker served in lucrative positions on Wall Street in between his stints in public service, including an early career at Chase Manhattan bank. He was chairman of Wolfensohn & Co., an investment firm, from 1988 to 1996.

After leaving the Fed, Volcker took on assignments as a troubleshooter. He ran a commission to investigate what Swiss banks did with the assets of Holocaust victims during and after World War II. The United Nations assigned him to look into allegations of corruption in a UN program to provide food aid to Iraq.

Volcker was born in Cape May, New Jersey, in 1927. He received a bachelor's degree from Princeton University and a master's from Harvard. In 1951, he spent a year at the London School of Economics as a Rotary Foundation Fellow.

His survivors include his second wife, Anke Dening, and two children.

After the financial crisis of 2008, President Barack Obama recruited Volcker as an economic adviser. In that role, Volcker pressed for restrictions on banks’ ability to trade in financial markets with their own money, rather than their clients’, and to invest in private equity and hedge funds.

The regulations, known as the “Volcker Rule,’’ were included in a far-reaching financial overhaul bill Congress passed in 2010. Volcker had little sympathy for big banks in the wake of the financial crisis, which required a taxpayer bailout of big Wall Street firms. He dismissed claims that deregulated financial institutions deserved credit for coming up with innovative products and services.

The only useful financial innovation he’d seen in years, he said, was the ATM.

Staff Writer Kaitlyn Kanzler contributed to this article.