Economic Report of the President

lowest point in the post-World War II period. With this high level ofunused economic capacity, inflationary pressures subsided.The inflation rate fell dramatically in 1982 to its lowest level in adecade. The upward trend in inflation from 1976 through 1980strengthened the Federal Reserve's determination to slow the growthin the monetary aggregates and contributed to high interest rates foran extended period. By mid-1982, when evidence of progress againstinflation and continued weakness in economic activity became clear,interest rates began to fall sharply. The ensuing decline reduced interestrates to their lowest levels in more than 2 years, as illustratedin Chart 6-1.Chart 6-1PERCENT PER YEAR22Interest Rates2018PRIME RATE16141978 1979 1980 1981 1982SOURCES: DEPARTMENT OF THE TREASURY AND BOARD OF GOVERNORSOF THE FEDERAL RESERVE SYSTEM.The decline in interest rates brought much-needed relief to the interest-sensitive,cyclical sectors of the economy. By the end of 1982,clear progress toward recovery had been made, as reflected in continuinggains in the composite index of leading indicators of economicactivity, as shown in Chart 6-2.125