For twenty-four straight years after Paul Volcker broke the Great Inflation, US consumer prices rose at an average of just 3.1% a year, and never once touched the double digits that had been routine in the 1970s. Economists call the stretch from 1983 to 2007 the Great Moderation: two Fed chairmen, one Gulf War oil shock, an Asian financial crisis, and a dot-com bust all passed through it without reigniting the kind of inflation that had defined the previous two decades. It ended the way most calm periods in economic history end, with a shock nobody had priced in.
Finishing what Volcker started, 1983-1986
Inflation had already fallen from 13.5% in 1980 to 3.2% in 1983 by the time the Great Moderation’s clock starts, the payoff from Paul Volcker’s interest-rate campaign against the Great Inflation of the 1970s. The hard part, for Volcker, was proving it would stick. It did: inflation ran 4.3% in 1984 and cooled further to 1.9% in 1986 as oil prices collapsed alongside a global supply glut, the first sign that the disinflation wasn’t a one-year fluke.
Greenspan’s Fed, tested early, 1987-1994
Alan Greenspan took over as Fed chairman in August 1987, two months before the stock market crashed that October, and spent his first years proving the Fed would backstop financial panics without letting inflation creep back in. It mostly held: 4.1% in 1988, 4.8% in 1989, then a jump to 5.4% in 1990 after Iraq’s invasion of Kuwait roughly doubled oil prices in three months. The 1990-91 recession that followed cooled demand fast, and inflation eased to 4.2% in 1991 and kept sliding through the early 1990s. In 1994, with inflation already under 3%, the Fed raised its policy rate from 3% to 5.5% anyway, a preemptive tightening meant to head off overheating before it started rather than fight it after the fact. Inflation that year came in at 2.6%, the lowest reading since 1986.
The calmest stretch, 1995-2000
The back half of the 1990s produced some of the mildest inflation the CPI has ever recorded outside the Great Depression’s deflation years. The 1997 Asian financial crisis crushed global demand for oil, and crude fell under $11 a barrel by December 1998, dragging US inflation down to just 1.6% that year, tied for the calmest reading of the whole 1983-2007 stretch. A tightening labor market and a booming stock market pushed prices back up to 3.4% by 2000, still mild by any pre-1983 standard.
A mild recession, then a bubble, 2001-2006
The dot-com crash and the recession that followed the September 11 attacks barely dented consumer prices: inflation ran 2.8% in 2001 and just 1.6% in 2002, tying the 1998 low as the calmest reading of the entire period. The Fed held rates near 1% for most of 2003 and 2004 to support the recovery, cheap credit that helped inflate the housing bubble even as measured inflation stayed unremarkable, 2.7% in 2004, 3.4% in 2005 (partly a Hurricane Katrina gasoline spike), and 3.2% in 2006. The mortgage market that housing boom was built on started cracking in 2007, though the CPI, at 2.8% that year, gave almost no warning of what was coming.
How the calm ended, 2007-2009
Oil is what finally broke the pattern. Crude climbed toward $147 a barrel by July 2008 as the financial crisis was already spreading, and headline inflation for the year hit 3.8%, its highest reading since 1991. Then the crash: Lehman Brothers failed in September 2008, credit froze, and demand for everything from gasoline to housing collapsed. Consumer prices fell 0.4% in 2009, the first full-year deflation since 1955 and a hard stop to twenty-six years of steady, predictable price growth.
What the calm was worth, in dollars
A basket of goods that cost $100 in 1983 cost $208 by 2007, a cumulative rise of about 108% spread across 24 years, versus the 206% the 1965-1982 Great Inflation did in seventeen. Run the 1983-to-2007 stretch through the calculator to see what a fixed sum of money from either era was actually worth by the end of it, or read how this stretch compares to every other decade in the CPI’s history and to the 2021-2023 surge that eventually ended it for good.