Timothy Geithner may have helped guide the country through the financial crisis, but in January 2008 — right as the U.S. economy entered a recession — the former Federal Reserve Vice Chairman (and later Treasury Secretary) was still very optimistic.
The Federal Reserve has published the transcripts from its 2008 Federal Open Market Committee meetings, and this is what Geithner had to say at the January meeting (which, according to NBER, was the very beginning of what would become the Great Recession). Here’s Geithner:
You know, we have the implausible kind of Goldilocks view of the world, which is it’s going to be a little slower, taking some of the edge off inflation risk, without being so slow that it’s going to amplify downside risks to growth in the United States. That may be too optimistic, but the world still is looking pretty good. Central banks in a lot of places are starting to soften their link to the dollar so that they can get more freedom to direct monetary policy to respond to inflation pressure. That’s a good thing. U.S. external imbalances are adjusting at a pace well ahead of expectations. That’s all good, I think. As many people pointed out, the fact that we don’t have a lot of imbalances outside of housing coming into this slowdown is helpful. There’s a little sign of incipient optimism on the productivity outlook or maybe a little less pessimism that we’re in a much slower structural productivity growth outlook than before. The market is building an expectation for housing prices that is very, very steep. That could be a source of darkness or strength, but some people are starting to call the bottom ahead, and that’s the first time. It has been a long time since we’ve seen any sense that maybe the turn is ahead. It seems unlikely, but maybe they’re right. In the financial markets, I think it is true that there is some sign that the process of repair is starting.
“Having said that, though, I think it is quite dark still out there,” Geithner conceded. “Like everyone else, we have revised down our growth forecast. We expect very little growth, if any, in the first half of the year before policy starts to bring growth back up to potential.”
It was much darker than Geithner originally predicted.