Paul Volcker, 92, the former Federal Reserve chairman who broke the back of U.S. inflation in the 1980s and three decades later led President Barack Obama’s bid to rein in the investment risk-taking of commercial banks, died Sunday in New York, according to his daughter, Janice Zima.

In a career that spanned more than a half-century, Mr. Volcker became a one-man economic cleanup crew, called on to devise a successor to the gold standard, a cure for runaway inflation, and, in 2008, a response to the housing-market collapse that exposed Americans as perilously leveraged and their banks as highly prone to risk.

That last effort led to the Volcker Rule, widely loathed by bankers and subsequently a top priority for overhaul by the Trump administration.

“Paul was as stubborn as he was tall, and although some of his policies as Fed chairman were politically costly, they were the right thing to do,” said former President Jimmy Carter, who appointed Mr. Volcker as Fed chief in 1979.

The grandson of German immigrants, Mr. Volcker held strong beliefs about the dangers of inflation and the virtues of frugality. He flew coach, grumbled about restaurant prices, and took his first wife on a honeymoon to a fishing cabin in Maine rather than to Bermuda, as she’d hoped. He scorned financial industry innovations such as credit-default swaps and quipped that the best new financial product in recent decades was the automated teller machine.

Obama’s call

Mr. Volcker worked at the Treasury Department, at the Fed, or as an economic adviser under six presidents. At 81, two decades removed from his Fed days, he was recalled to government duty in November 2008 by Obama, then president-elect, who named him to head a new Economic Recovery Advisory Board as the nation was struggling to pull out of a recession and recover from the worst financial crisis since the Great Depression.

Within months, the 6-foot, 7-inch Mr. Volcker was standing out as the White House insider pushing for the most radical regulatory reforms. He wanted to bar traditional deposit-taking banks from making speculative investments on their own account, a practice known as proprietary trading, and from investing in hedge and private-equity funds. Obama formally proposed the idea in January 2010, calling it “a simple and commonsense reform, which we’re calling the Volcker Rule — after this tall guy behind me.”

Mr. Volcker’s rule was incorporated in the 2010 Dodd-Frank law — though not before being weakened, which led Mr. Volcker to express doubt about the Obama economic team’s commitment to it.

When Mr. Volcker left his White House post in February 2011, banks continued to argue that Mr. Volcker’s proposal would excessively restrict their business.

Wall Street critics

“Paul Volcker, by his own admission, has said he doesn’t understand capital markets,” Jamie Dimon, chief executive officer at JPMorgan Chase & Co., said on Fox Business News in February 2012.

The Federal Reserve, Federal Deposit Insurance Corp. and three other agencies completed the final rule in December 2013. It ran close to 100 pages, with hundreds more in supporting material, and sought to distinguish proprietary trading from still-permitted market making and hedging to mitigate risks. Mr. Volcker quipped that in the end, “I was gratified to see that the rule itself is shorter than my own home insurance policy.”

The rule took effect in July 2015. President Donald Trump, in 2017, ordered regulators to rewrite the rule and soften its effect. In an Aug. 20, 2019, letter to Fed Chairman Jerome Powell, Mr. Volcker complained that regulators had used “simplification” as an excuse to weaken the rule in a way that would amplify risks to the financial system.

Paul Adolph Volcker Jr. was born on Sept. 5, 1927, in Cape May to Paul Volcker Sr., the city manager, and his wife, the former Alma Klippel. The family moved to Teaneck, in North Jersey, in 1930 when the elder Volcker, a civil engineer, became that town’s manager.

Known as “Buddy” to distinguish him from his father, Mr. Volcker had to repeat kindergarten because teachers interpreted his silent manner as a sign of immaturity, his mother told Newsweek for a 1986 profile.

Princeton, Harvard

He received a bachelor’s degree in 1949 from Princeton University and a master’s degree in political economy and government from Harvard University in 1951. In 1951-52, as a student at the London School of Economics, he toured Europe at the expense of his planned Ph.D. thesis, which never got done, Joseph B. Treaster wrote in Paul Volcker: The Making of a Financial Legend, his 2011 book.


As president of the New York Fed from 1975 to 1979, Mr. Volcker became the loudest voice on the Federal Open Market Committee advocating monetary restraint and high interest rates — a full-fledged inflation warrior. “Sometimes we still hear the argument that in time we can learn to live with inflation,” he said in a 1978 speech. “But experience suggests the contrary.”

Carter named Mr. Volcker Fed chief in 1979, succeeding G. William Miller, who became Treasury secretary. Miller had been criticized as insufficiently focused on fighting inflation. During his 17 months as Fed chairman, inflation had risen to 11.8% from 6.6%.

“The challenge was very clear when I was there: You’ve got an inflation problem, and it was getting out of hand,” Mr. Volcker said in a 2006 interview.

Mr. Volcker announced what became known as his “Saturday Night Special” on Oct. 6, 1979: a series of measures intended to squeeze inflation. The moves began with a 1 percentage point increase in the rate Fed banks charge financial institutions, to 12%. But the most dramatic was the Fed’s shift to focusing on limiting money supply growth — even if it meant large jumps in interest rates. Which in the end it did, as interest rates climbed as high as 20%.

‘Internal discipline’

Mr. Volcker’s policies came at a high price, and the fallout contributed to Ronald Reagan’s landslide victory over Carter in the 1980 presidential election. The U.S. economy went into recession twice during his tenure, the jobless rate climbed to 10.8% in November 1982, and bad loans and bankruptcies soared. Home builders and farmers protested. Congressional leaders including Democratic Sen. Robert Byrd of West Virginia and Republican Rep. Jack Kemp of New York introduced legislation aimed at requiring the Fed to lower interest rates. The bills were not adopted.

A bodyguard was assigned to Mr. Volcker after a man entered the Fed building in Washington with a sawed-off shotgun, revolver, and knife, according to William Greider’s 1987 book, Secrets of the Temple.

Though he was vilified in some quarters for the impact on business, his determined and successful assault on inflation won him admirers in both U.S. political parties and among a generation of central bankers from New Zealand to South Africa.

Mr. Volcker stepped down in 1987, saying he didn’t want a third term.

He became a critic of the Fed’s response to the 2000s financial crisis after the central bank orchestrated the sale of Bear Stearns Cos. to JPMorgan Chase in March 2008 by taking some of Bear Stearns’ riskiest assets onto the Fed’s own balance sheet. The central bank was operating at “the very edge” of its legal authority, he said in an April 2008 speech to the Economic Club of New York.

He also challenged the easy-money policies under his successor Alan Greenspan without attacking his successor by name. In an October 2008 interview with Charlie Rose, he said, “We bent over backwards to ease money for reasons I didn’t understand.”