Volcker's Federal Reserve had to fight high inflation expectations as much as high inflation. Rate-raisers face a mirror image of that challenge today.
Central Banks are frightened—and with good reason. Global inflation is stubbornly low and growth is not accelerating. Central banks appear to have exhausted their toolkits, and there is a growing consensus nothing will work.
For the Fed, the situation is a mirror image of Paul Volcker’s battle with inflation in the 1970s. As Volcker accepted the Fed chair from President Jimmy Carter in 1979, inflation was running rampant. In response, Volcker’s Fed raised interest rates to levels never seen again. It is well known that he quelled inflation, but it took a long time. And it took even longer to convince the public that inflation would stay at reasonable levels.