For example, while the direction of desired change was the opposite of that in Japan, the Federal Reserve under Chairman Paul Volcker was successful in the late 1970s to early 1980s in substantially lowering inflation expectations, which had been ratcheting upward, through powerful monetary tightening (Chart 3).
Since both unemployment and inflation were surging at the time, such stringent monetary tightening created both political and social challenges. Despite such difficulties, however, it was quite clear to Chairman Volcker what policy steps he had to take to lower inflation expectations: he had to pursue strong monetary tightening by substantially raising short-term interest rates to contain inflation.