In 1981, the American economy was still mired in the trouble known as stagflation – a bitter blend of high inflation and disappointing growth. Fed chief Paul Volcker had announced policies in October 1979 to corral the rampant price pressures via a tight monetary policy. But he hadn't won the battle. Investors had seen other Fed leaders falter on this front, and Mr. Volcker himself had seemed inconsistent.
On Aug. 30, 1981, Mr. Volcker went on a Sunday ABC News show and vowed to persist. ''We have to keep restraining the growth of money and credit,'' Volcker said, according to a New York Times story about his comments. ''Yes, we intend to stick with it,'' he added.
Investors didn't immediately buy in, and Volcker himself said financial markets would have to be persuaded by actions, not just words. Ultimately, monetary policy remained tight even as the nation experienced a deep recession from mid-1981 to the end of 1982, and an era of declining inflation rates was under way.