Transcripts for FOMC meetings in the later months of 2008 became available Friday evening and, boy, there are some howlers! Presidents couldn’t agree on where the economy was going in January 2008. From the NYT:
JANET L. YELLEN: The severe and prolonged housing downturn and financial shock have put the economy at, if not beyond, the brink of recession.
RICHARD FISHER: While there are tales of woe, none of the 30 C.E.O.’s to whom I talked, outside of housing, see the economy trending into negative territory. They see slower growth. Some of them see much slower growth. None of them at this juncture – the cover of Newsweek notwithstanding, a great contra-indicator, which by the way shows “the road to recession” on the issue that is about to come out – see us going into recession.
CHARLES EVANS: Our cumulative actions following this meeting should provide noticeable stimulus to the economy by midyear.… In the absence of further negative developments, growth should improve in the second half of this year.
ERIC ROSENGREN: We could soon be or may already be in a recession.
By June it was still all over the joint:
MR. FISHER: If Robert Frost will forgive me, the woods are not lovely, and they are indeed deep and dark on the price front. Although the tail risk of economic recession has diminished, I think it still exists. … But the risk of inflation, in my view, has assumed greater depth and breadth since we last met.
MR. LACKER: Even if we avoid outright recession, as now seems probable, the unemployment rate is likely to keep rising for a time.
MR. BERNANKE: Notwithstanding the stronger-than-expected performance in the second quarter, I think there is an excellent chance that we will still see a recessionary dynamic. … I do not agree that systemic risk has gone away. I think it is in abeyance. There is perhaps, if anything, excessive confidence in the ability of the Fed to prevent a crisis situation from metastasizing.
Even in August, on the eve of apocalypse, some put on a happy face, from Calculated Risk:
My sense is that the level of systemic risk associated with financial turmoil has fallen dramatically. For this reason, I think the FOMC should begin to de-emphasize systemic risk worries. My reasoning is as follows. Systemic risk means that the sudden failure of a particular financial firm would so shock other ostensibly healthy firms in the industry that it would put them out of business at the same time. The simultaneous departure of many firms would badly damage the financial services industry, causing a substantial decline in economic activity for the entire economy. This story depends critically on the idea that the initial failure is sudden and unexpected by the healthy firms in the industry. But why should this be, once the crisis has been ongoing for some time? Are the firms asleep? Did they not realize that they may be doing business with a firm that may be about to default on its obligations? Are they not demanding risk premiums to compensate them for exactly this possibility? My sense is that, because the turmoil has been ongoing for some time, all of the major players have made adjustments as best they can to contain the fallout from the failure of another firm in the industry. They have done this not out of benevolence but out of their own instincts for self-preservation. As one of my contacts at a large bank described it, the discovery process is clearly over. I say that the level of systemic risk has dropped dramatically and possibly to zero.
Then in December:
MS. YELLEN: This nasty set of economic linkages is gaining momentum.
MR. BERNANKE: It’s not a moderate recession, and it’s not a normal financial downturn.
A few career sinkers there!
