ECB’s Rehn: Acting Swiftly Now Can Avoid Volcker Shock

European Central Bank Governing Council member Olli Rehn said frontloading interest-rate increases to eliminate inflation could mean that ECB’s policymakers do not have to take even more drastic action down the line.

“By acting swiftly now, we should be able to avoid what is often called a ‘Volcker shock’,” he said on Monday in a newspaper column, referring to the “rigorous disinflationary policies of the early 1980s” by former Federal Reserve chief Paul Volcker.

The Volcker Shock was a period of historically high interest rates hastened by the then Fed Chair Paul Volcker’s decision to raise the US key interest rate, the Fed funds effective rate, during the first three years of his term.

Volcker was appointed chairperson of the Fed in August 1979 by President Jimmy Carter, as replacement for William Miller, who Carter had made his treasury secretary. Volcker was one of the most hawkish supporters of tightening monetary policy to combat inflation.