Volcker imposed tight money; Reagan's support enabled him to maintain the painful and unpopular policy (the monthly unemployment rate peaked at 10.8 percent) long enough to purge inflationary psychology
Of course, this is just one example of the damage that an inflationary psychology
inflicts on our economy.
If, through presidential leadership, the United States were to mitigate the inflationary psychology that propelled inflation, economic activity would advance as inflation fell.
Burns believed that an incomes policy would engender a reduction in inflationary psychology, or expectations, as well as inflation itself.
Governors and district bank presidents worried about loss of credibility in the financial markets and the potential renewal of inflationary psychology
that was dampened significantly during the Volcker era.
I wish it were possible to lay out in advance exactly what conditions have to prevail to portend a buildup of inflation pressures or inflationary psychology
. However, the circumstances that have been associated with increasing inflation in the past have not followed a single pattern.
And once an inflationary psychology
takes hold, it can be difficult and costly to reverse.
Angell dissented because he believed that the persisting indications of rising inflation and the related deterioration in inflationary psychology
called for a prompt move to tighten monetary policy.
Instead of trying to manage the business cycle, we have increasingly focused on managing the inflationary psychology of households and businesses.
By striking a balance between money supply and its demand, that is, by providing a relatively stable purchasing power for the dollar, the central bank has done a remarkable job in building its credibility and keeping the inflationary psychology subdued.