US consumer prices rose for seventeen straight years with barely a pause, from a tame 1.6% in 1965 to a 13.5% peak in 1980, before Paul Volcker’s Federal Reserve broke the cycle with the sharpest interest rate hikes of the postwar era. Three presidents and four Fed chairs tried nearly every tool short of that one along the way: wage and price controls, a broken link to gold, and two separate oil shocks, and inflation kept coming back each time until a policy convincingly willing to cause a recession finally ended it.
Guns and butter, 1965-1969
Lyndon Johnson funded the Great Society programs, Medicare, Medicaid, and federal anti-poverty spending, on top of a rapidly escalating Vietnam War, without raising taxes to cover either one, an expansionary fiscal push landing on an economy already near full employment. Fed chairman William McChesney Martin raised rates in 1966 but backed off under White House pressure the following year, and the accommodative policy that followed let inflation climb from 1.6% in 1965 to 5.5% in 1969, mild by the standards of what came next but persistent enough that households and businesses started expecting higher prices as the norm rather than the exception.
Nixon’s wage-price gamble, 1971-1974
On August 15, 1971, Richard Nixon closed the gold window, ending the dollar’s convertibility under Bretton Woods, and froze wages and prices nationwide for 90 days. Three more phases of mandatory controls followed through April 1974, and measured inflation stayed artificially calm through 1972 as a result, even though the underlying pressure never went away. The controls came off just as the October 1973 Arab oil embargo roughly quadrupled crude prices within months, and freed prices caught up fast: inflation, which had cooled to 3.2% in 1972, hit 6.2% again in 1973 and then 11.0% in 1974, the sharpest jump since the World War II price controls lifted in 1947.
The mid-decade drift, 1975-1978
The 1974 oil shock tipped the economy into a deep recession, and Fed chairman Arthur Burns, worried about unemployment approaching 9%, eased rates before inflation had actually been brought down. Inflation cooled to 5.8% in 1976 on the back of that recession, then climbed back to 6.5% in 1977 and 7.6% in 1978 as the earlier easing let expectations re-entrench. Burns later acknowledged that the Fed lacked the political appetite to tighten hard enough to finish the job, a lesson his successors took more seriously than he had.
The second shock and double digits, 1979-1980
The Iranian Revolution in early 1979 cut global oil supply again, and inflation accelerated to 11.3% that year. President Carter appointed Paul Volcker as Fed chairman in August 1979, and within two months Volcker changed how the Fed operated, targeting the money supply directly instead of the federal funds rate and letting that rate climb wherever tightening the money supply pushed it. Inflation kept climbing regardless through the policy shift, peaking at 13.5% in 1980, the highest annual reading the CPI has recorded since.
Volcker’s medicine, 1980-1982
Money-supply targeting pushed the federal funds rate above 19%, a level the US had never reached before or since, and triggered back-to-back recessions: a short one in early 1980 and a much deeper one from mid-1981 into late 1982. Unemployment peaked above 10% in the second recession, the worst since the Great Depression, and the cost showed up directly in the inflation numbers: 10.3% in 1981, 6.2% in 1982, and 3.2% in 1983, the fastest sustained disinflation in the history of the series.
What finally broke it
Both 1973 and 1979 delivered genuine oil supply shocks, but the shock itself wasn’t what made the 1970s different from later energy spikes that never reignited anything close to this. What made this stretch the Great Inflation was that fiscal spending, an accommodative Fed, and wage-price controls that suppressed prices without addressing their cause let the public stop believing the Fed would ever actually choose a recession to bring inflation down. Once Volcker demonstrated that it would, the same tool the Fed still uses today worked, at the cost of the deepest unemployment in generations.
What it cost, in dollars
A basket of goods that cost $100 in 1965 cost $306 by 1982, a cumulative rise of roughly 206% across those seventeen years, more than the entire rest of the CPI’s history from 1913 to 1965 combined. Run the 1965-to-1982 stretch through the calculator to see exactly how far a fixed sum of money moved, or read how inflation by decade places this episode against every other one in the CPI’s history since 1913.