The 1980 Recession: Six Months, Credit Controls and the First Volcker Squeeze
The 1980 recession ran six months, from January to July 1980 (NBER), the shortest US recession on record until 2020. Real GDP fell 2.2% peak to trough and unemployment rose from 6.3% to 7.8%. It was triggered by 14.6% inflation, a federal funds rate near 18%, and the consumer credit controls President Carter announced on 14 March 1980.
The recession in numbers
- NBER peak and trough
- January 1980 to July 1980 (Q1 to Q3 1980) · NBER
- Real GDP, peak to trough quarter
- -2.2% · BEA, FRED GDPC1
- Worst quarter
- Q2 1980, -8.0% annualised · BEA, FRED GDPC1
- Real consumer spending, Q2 1980
- -8.7% annualised · BEA, FRED PCECC96
- Unemployment rate
- 6.3% (Jan) to 7.8% (Jul) · BLS, FRED UNRATE
- Consumer price inflation
- 14.6% a year in March 1980 · BLS CPI, FRED CPIAUCSL
- Federal funds rate
- 17.61% (Apr) to 9.03% (Jul) · Federal Reserve, FRED FEDFUNDS
- Housing starts
- 1.35 million (Feb) to 927,000 (May) a year · Census, FRED HOUST
- Industrial production
- -6.7%, February to July 1980 · Federal Reserve, FRED INDPRO
- Following expansion
- 12 months, to July 1981 · NBER
Why the economy turned down in early 1980
By the start of 1980 inflation was running in double digits. The consumer price index was 14.6 percent higher in March 1980 than a year earlier (BLS). The second oil shock had lifted the posted price of West Texas Intermediate crude from $14.85 a barrel in December 1978 to $39.50 by April 1980 (FRED WTISPLC). In October 1979 the Federal Reserve under Paul Volcker had switched to targeting the money supply and let interest rates rise as far as needed: the federal funds rate averaged 13.82 percent in January 1980 and 17.61 percent in April.
NBER puts the peak of the expansion in January 1980. The decline that followed was concentrated in a single quarter: real GDP fell at an 8.0 percent annualised rate in Q2 1980, and over the whole recession it fell 2.2 percent from Q1 to Q3.
The credit controls of 14 March 1980
On 14 March 1980 President Carter announced an anti-inflation programme and invoked the Credit Control Act of 1969, the only time that power has been used. The Federal Reserve required lenders to hold a special deposit equal to 15 percent of any growth in covered consumer credit above its 14 March level, and added restraints on money market funds and bank lending.
The effect on households was larger than intended. Real consumer spending fell at an 8.7 percent annualised rate in Q2 1980 (BEA), and housing starts dropped from an annual rate of 1.35 million in February to 927,000 in May (Census). The Fed cut the consumer-credit deposit to 7.5 percent on 22 May and announced the phase-out of the programme on 3 July 1980 (Schreft, Richmond Fed, 1990).
A fast recovery, then a second recession
Rates fell as quickly as they had risen. The federal funds rate averaged 9.03 percent in July 1980, half its April level. With the controls lifted, spending recovered and real GDP grew at a 7.7 percent annualised rate in Q4 1980. NBER dates the trough to July 1980.
Inflation, though, was still high, and the Fed tightened again: the funds rate averaged 18.90 percent in December 1980. The expansion lasted only twelve months. In July 1981 the economy entered the 1981-82 recession, a longer and deeper downturn that finally broke inflation. Together the two are often called the double-dip recession of the early 1980s.
How 1980 compares
At six months, 1980 is the second-shortest US recession on NBER's record, behind the two months of 2020. Its 2.2 percent fall in real GDP was close to the postwar average, and its 7.8 percent unemployment peak was the same as 1990-91's. For every cycle side by side, see the post-WWII recessions table.
Frequently Asked Questions
When was the 1980 recession?
NBER dates the 1980 recession from a January 1980 peak to a July 1980 trough, six months. It was the shortest US recession on record until the two-month COVID recession of 2020. The expansion that followed lasted only twelve months, to July 1981, when the 1981-82 recession began.
How bad was the 1980 recession?
Short but sharp. Real GDP fell 2.2 percent from Q1 to Q3 1980 (BEA), with Q2 1980 alone at -8.0 percent at an annualised rate. Unemployment rose from 6.3 percent in January to 7.8 percent in July (BLS). Real consumer spending fell at an 8.7 percent annualised rate in Q2 1980.
What caused the 1980 recession?
Inflation and the policy response to it. Consumer prices were rising 14.6 percent a year by March 1980 (BLS CPI). The Federal Reserve under Paul Volcker had tightened sharply from October 1979, and the federal funds rate averaged 17.61 percent in April 1980. On 14 March 1980 President Carter invoked the Credit Control Act of 1969, and the Fed imposed a 15 percent special deposit on increases in consumer credit. Consumer borrowing and spending fell faster than anyone had planned.
What were the 1980 credit controls?
Under the Credit Control Act of 1969, President Carter authorised the Federal Reserve on 14 March 1980 to restrain credit. The main measure required lenders to hold a special deposit at the Fed equal to 15 percent of any increase in covered consumer credit above its 14 March level. The Fed halved that to 7.5 percent on 22 May and announced the phase-out of the programme on 3 July 1980 (Schreft, Federal Reserve Bank of Richmond, 1990).
Why did the 1980 recession end so quickly?
Interest rates fell fast and the credit controls came off. The federal funds rate fell from 17.61 percent in April to 9.03 percent in July 1980, and the controls were phased out from 3 July. Housing and car buying rebounded, and real GDP grew at a 7.7 percent annualised rate in Q4 1980. But inflation had not been beaten, the Fed tightened again (the funds rate averaged 18.90 percent in December 1980), and a second, deeper recession began in July 1981.
How these figures were made: NBER's monthly and quarterly turning points; real GDP change between NBER's peak and trough quarters, computed from BEA chained-dollar GDP (FRED GDPC1); unemployment and interest rates are monthly values from FRED as published in October 2026. Sources: NBER business cycle dates; BEA real GDP (FRED GDPC1); real PCE (FRED PCECC96); BLS unemployment (FRED UNRATE); BLS CPI (FRED CPIAUCSL); federal funds rate (FRED FEDFUNDS); housing starts (FRED HOUST); industrial production (FRED INDPRO); Schreft, Credit Controls: 1980, Richmond Fed Economic Review (1990).