The Federal Reserve's own historical site, Federal Reserve History, labels 1965–1982 "The Great Inflation" and calls it the defining macroeconomic failure of the second half of the 20th century. US inflation ran around 1% in 1964; by 1980 it approached 15%. Along the way the country discovered stagflation — high inflation and high unemployment at the same time — which the prevailing economic models said should not happen.
According to the Fed's retrospective essays, the root cause was monetary policy that allowed the money supply to grow too fast. Policymakers of the era believed in a permanently exploitable Phillips curve trade-off: tolerate a bit more inflation, get permanently lower unemployment. Fiscal pressure from the Vietnam War and Great Society programs, plus the collapse of the Bretton Woods gold anchor in 1971, made things worse. Once households and firms stopped believing prices would stay stable, wages and prices began chasing each other, and inflation became self-reinforcing. Even direct wage and price controls in 1971 only suppressed the symptoms temporarily.
In October 1973, OPEC's Arab members embargoed oil shipments to the United States, and crude prices roughly quadrupled — the first oil shock. The 1979 Iranian revolution triggered a second one. As the Federal Reserve History essay on the 1973–74 shock notes, surging energy costs fed broad price increases, layering cost-push pressure on top of demand-driven inflation. CPI inflation hit double digits in 1974 and again in 1979–1980.
Paul Volcker became Fed chairman in August 1979. On October 6, 1979, he announced a historic change in operating procedure: instead of targeting interest rates, the Fed would restrain the growth of bank reserves — effectively letting rates go wherever they needed to. The federal funds rate peaked near 20% in 1981. The cost was brutal: back-to-back recessions in 1980 and 1981–82, with unemployment reaching 10.8%. But inflation fell from nearly 15% in 1980 to under 3% by 1983, and the credibility the Fed earned — the belief that it would do whatever it takes — became the bedrock of US monetary policy.
The Great Inflation cemented two lessons: unanchored inflation expectations are extremely expensive to re-anchor, and central banks need an explicit commitment to price stability — the intellectual ancestor of today's 2% targets. To feel the episode in your wallet, try the inflation calculator: $100 in 1970 had lost more than half its purchasing power by 1982. Prices rose roughly 2.5x in just 12 years.