The high inflation of the 1970s
In the 1970s, the Fed tried a "stimulation-accommodation" approach to tame inflation and an economic downturn, which meant increasing open-market purchases to stimulate the economy, and then accommodated the recovery by keeping interest rates down, according to the Library of Economics and Liberty. The approach pushed inflation to a high of about 14%, according to official numbers, though Edmunds says actual inflation was a few percentage points higher.
The stock market, unemployment rate and deficit weren't doing too well, either, he added. The Federal Reserve had a dual mandate to mind: Keep inflation steady and unemployment low.
But those goals could contradict each other, Wellington says.
Ultimately, when inflation started receding, unemployment rose. It eventually reached nearly 10% in the late '70s, according to the Bureau of Labor Statistics.
It took a new Fed chairman, Paul Volcker -- nicknamed "Darth Volcker" during this period -- to reroute the economy. He tightened monetary policy, made the Fed more independent from government and took a lightsaber to inflation. It fell from about 13% in 1979 to less than 3% in 1983, according to the U.S. inflation calculator.
"Sometimes you have a restrictive monetary policy and you end up increasing unemployment," Wellington says. "Now, oops, all of a sudden you're not doing what your mandate says."