What is Stagflation?

Stagflation is what the US experienced in the late 1970′s and was only dealt with by the deep recession of 1982. It was the deepest downturn in the economy since the 1930′s. The unemployment rate spiked to the highest since the Great Depression.

Normally, inflation accompanies an expanding economy. During the late 1970′s, the US was experiencing double digit inflation, but the economy was stagnant, which means very low growth. Paul Volker, the Fed Chairman at time, cured it by increasing interest rates so high that the economy was hit by a deep recession. They brought the economy out of it by gradually lowering interest rates. They’ve been able to manage inflation ever since.