Paul Volcker on the tradeoff

From The Federal Reserve’s “Dual Mandate”: The Evolution of an Idea (PDF):

Volcker defended the Fed’s actions in 1981 testimony to the Senate Committee on Banking, Housing, and Urban Affairs:

I am wholly convinced—and I think I can speak for the whole Board and whole Open Market Committee—that recognizing that that objective for unemployment [4 percent] cannot be reached in the short run—the kinds of policies we are following offer the best prospect of returning the economy in time to a course where we can combine as full employment as we can get with price stability.

I bring in price stability because we will not be successful, in my opinion, in pursuing a full employment policy unless we take care of the inflation side of the equation while we are doing it. I think that philosophy is actually embodied in the Humphrey-Hawkins Act itself. I don’t think that we have the choice in current circumstances—the old tradeoff analysis—of buying full employment with a little more inflation.

We found out that doesn’t work, and we are in an economic situation in which we can’t achieve either of those objectives immediately. We have to work toward both of them; we have to deal with inflation. And the Federal Reserve has particular responsibilities in that connection.