The Federal Reserve has published the transcripts from its 2008 Federal Open Market Committee meetings, the time when the economy began to really hurt.
At that first January meeting — which, according to NBER, was right at the beginning of what would become the Great Recession — some FOMC members recognised the future onslaught more than others.
Dallas Fed President Fisher, for example, invoked a Woody Allen quote and downplayed the possibility of a recession.
But Janet Yellen, who now chairs the Federal Reserve, was more on point. And it’s part of the reason she has ascended to her current position. From the January 2008 transcript:
I broadly agree with the Greenbook forecast for economic growth this year and with the assessment that the downside risks to that forecast are considerable. The severe and prolonged housing downturn and financial shock have put the economy at, if not beyond, the brink of recession. My forecast incorporates fiscal stimulus of the same magnitude as the Greenbook and monetary stimulus that is somewhat larger. I have assumed a 50 basis point cut at this meeting and an additional 25 basis point cut during the first half. My forecast shows growth of 1½ per cent in 2008, like the Greenbook, but it has a more pronounced acceleration in 2009 as the monetary and fiscal stimulus kickstarts the economy.
Credit where credit is due. Yellen correctly suggested that we might have been “beyond the brink of recession.” But her unemployment targets were way off. She continues:
The unemployment rate edges up this year to 5¼ per cent before dropping gradually next year
toward the natural rate of 4¾. I am especially concerned about the outlook for consumer spending. The combined hits to equity and housing wealth will extract a considerable toll, and consumer spending will be further depressed by slower growth in disposable income due to weaker employment growth. Delinquencies and charge-offs on most forms of consumer debt have already risen, and slower job growth seems likely to exacerbate this trend, prompting financial institutions to further tighten credit standards and terms. In my forecast, such developments reverberate back negatively onto economic activity.