The 1970s US is the textbook case, but the mechanism is clearest if you zoom in on a single year: 1979. Oil had already spiked twice — in 1973 and again after the Iranian Revolution in 1979. By mid-1979, annual inflation was running above 11%. Workers across industries had watched their purchasing power shrink for years. Union contracts increasingly included automatic cost-of-living adjustments — raises that kicked in automatically whenever the CPI rose above a threshold. Those clauses hardwired the wage response to inflation into every affected contract. Prices go up → wages go up automatically → businesses raise prices → prices go up → wages go up automatically. The feedback loop had been built directly into labor contracts. By the time Paul Volcker became Fed Chair in August 1979, inflation expectations were fully unanchored — meaning people no longer believed the Fed could or would control inflation. Surveys showed workers expecting 10%+ inflation for years into the future. So they kept demanding it in wages. So businesses kept building it into prices. Volcker's response — deliberately engineering a brutal recession by spiking interest rates above 20% — wasn't really about the money supply. It was about breaking the expectation. He needed to prove, painfully and publicly, that the Fed would do whatever it took to bring inflation down. Only then would workers stop baking 10% into their wage demands. Only then would businesses stop assuming they could raise prices freely. The recession worked. Unemployment hit nearly 11% in 1982. Inflation dropped from 13.5% in 1980 to 3.2% by 1983. The spiral broke — not because the underlying economics changed, but because the belief changed.