The primary factor credited with ending the high inflationary component of stagflation was the decisive monetary policy actions taken by Paul Volcker, who served as the Chairman of the Federal Reserve.
During his leadership, Volcker implemented an aggressive strategy of raising interest rates and tightening the money supply. This forceful approach was specifically aimed at combating the persistent, high inflation that characterized the stagflationary period. While effective in bringing down inflation, these policies had significant short-term economic repercussions. The American economy consequently dipped into a severe recession, with the unemployment rate reaching a peak of 10.4% in February 1983.
Following this challenging downturn, a period of economic recovery began in 1983. This rebound was further supported by a combination of policy initiatives, including both fiscal stimulus and growth in the money supply, which were actively pursued to help the economy emerge from recession and overcome the stagnant conditions of the stagflation era.
