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Volcker Lesson to Generation QE: Stock Recoveries Can Take Years

  • Volcker’s inflation fight started in 1979 and ended in 1982
  • History suggests prolonged volatility after imbalances
Paul Volcker, then chairman of the U.S. Federal Reserve, in 2014.
Paul Volcker, then chairman of the U.S. Federal Reserve, in 2014.

Photographer: Pete Marovich/Bloomberg

Around Columbus Day, 1979, Paul Volcker, newly installed as head of the Federal Reserve, embarked on the crusade that made him a legend: a no-holds-barred campaign to beat back inflation. On Wall Street, it took the better part of three years to recover.

Four decades later, the parallels abound. With inflation approaching double-digits, Jerome Powell’s Fed is engaged in its most powerful monetary tightening campaign since Volcker’s time, raising rates in chunks as stocks and bonds reel. History’s message for markets is a sobering one. Recoveries take time when central banks are against you.