Volcker was born in Cape May, New Jersey and grew up in Teaneck, New Jersey, where his father was the township's first Municipal manager. Volcker graduated from Teaneck High School.

Volcker's undergraduate education was at Princeton University; he graduated in 1949. He earned his M.A. in political economy from Harvard University's Graduate School of Arts and Sciences and Graduate School of Public Administration in 1951 and then attended the London School of Economics from 1951 to 1952 as a Rotary Foundation Ambassadorial Fellow, under the Rotary's Ambassadorial Scholarships program.

Volcker has received honorary degrees from several educational institutions including: Hamilton College (1980), University of Notre Dame, Princeton University, Dartmouth College, New York University, University of Delaware, Fairleigh Dickinson University, Bryant College, Adelphi University, Lamar University, Bates College (1989), Fairfield University (1994), Northwestern University (2004), Rensselaer Polytechnic Institute (2005), Brown University (2006), Georgetown University (2007), and Queen's University at Kingston in Canada (2009).

In 1952 he joined the staff of the Federal Reserve Bank of New York as a full-time economist. He left that position in 1957 to become a financial economist with the Chase Manhattan Bank. In 1962 he joined the U.S. Treasury Department as director of financial analysis, and in 1963 he became deputy under-secretary for monetary affairs. He returned to Chase Manhattan Bank as vice president and director of planning in 1965.

From 1969 to 1974 Mr. Volcker served as under-secretary of the Treasury for international monetary affairs. He played an important role in the decisions leading to the U.S. suspension of gold convertibility in 1971, which resulted in the collapse of the Bretton Woods system. In general he acted as a moderating influence on policy, advocating the pursuit of an international solution to monetary problems. After leaving the U.S. Treasury, he became president of the Federal Reserve Bank of New York from 1975 to 1979, leaving to become the chairman of the Federal Reserve in August 1979.

In 1975, Mr. Volcker also became a senior fellow in the Woodrow Wilson School of Public and International Affairs at Princeton University.

Paul Volcker, a Democrat, was appointed Chairman of the Federal Reserve in August 1979 by President Jimmy Carter and reappointed in 1983 by President Ronald Reagan.

Volcker's Fed is widely credited with ending the United States' stagflation crisis of the 1970s. Inflation, which peaked at 13.5% in 1981, was successfully lowered to 3.2% by 1983.

The federal funds rate, which had averaged 11.2% in 1979, was raised by Volcker to a peak of 20% in June 1981. The prime rate rose to 21.5% in 1981 as well.

Volcker's Fed elicited the strongest political attacks and most widespread protests in the history of the Federal Reserve (unlike any protests experienced since 1922), due to the effects of the high interest rates on the construction and farming sectors, culminating in indebted farmers driving their tractors onto C Street NW and blockading the Eccles Building.