MR. KOHN. Before we get illegal here, I am honored and pleased to nominate Ben Bernanke to be Chairman of the Committee…
They’re all here, released on Friday: transcripts of previously secret Fed meetings in the first year of the credit crisis.
We’re sifting through them at pixel time, but a few things we’ve already noted:
1) “Containing” subprime
From Hoenig, in March 2007 (there are lots of other sentiments to the same effect in the early docs)…
We’re also seeing that the secondary effects of the slowing of the housing market seem contained at the moment, so that slowing is not spilling over, and the containment is being strengthened by the facts that personal incomes are actually continuing to improve and that we have a good labor market…
To chief economist Stockton, in October 2007…
That said, we are not forecasting a deep credit crunch. If you were more concerned that that was what you were facing, I don’t think this forecast is consistent with it. This forecast is consistent with some unusual restraint on the availability of credit, principally on the mortgage side but more broadly elsewhere, but not truly a deep or strong headwind type of episode in which there is substantial impairment going forward…
To Stockton (again) in December 2007…
Overall, our forecast could admittedly be read as still painting a pretty benign picture: Despite all the financial turmoil, the economy avoids recession and, even with steeply higher prices for food and energy and a lower exchange value of the dollar, we achieve some modest edging-off of inflation. So I tried not to take it personally when I received a notice the other day that the Board had approved morefrequent drug-testing for certain members of the senior staff, myself included…
2) “Credibility” on rates
This is from Plosser, in a September 2007 meeting right as the flames of counterparty risk are rising:
I think allowing the fed funds rate to trade so low for so long away from our target really creates a credibility problem for this Committee. It puts us in an awkward position now because, in effect, it hasn’t gone unnoticed by the investment community…
(That comes in an interesting bit on how the Fed targets rates — Dudley responds by noting then-new tools for the central bank, including the “new authority” for paying interest on excess reserves.)
And Hoenig, at the recession tipping point in December 2007…
MR. HOENIG. David, in listening to this, I have a question. As you are looking at and projecting forward, we’re talking about a fed funds rate path that comes down, and yet we’ve talked a great deal about inflation rising temporarily in some views. The question I have is, Does it give you pause?
But Geithner, already in October 2007:
I think that the underlying inflation numbers and the measures we use to capture underlying inflation do not suggest any meaningful acceleration in underlying inflation, and we still expect the core PCE to run at a rate below 2 percent over the forecast period. In some ways, though, the inflation outlook now feels a bit worse. It feels worse because of the modest rise in breakevens that we saw following our last meeting and because of sentiment in markets around gold, commodity and energy prices, and the dollar.
3) The crisis response
Check out the December transcripts in particular, including this conference call on the TAF and the international liquidity measures of the time.
4) Don’t leak stuff to Greg Ip, OK!
CHAIRMAN BERNANKE. I have the less pleasant duty of reminding everybody about the Wall Street Journal article on our communications policy that appeared some time ago. I don’t think anybody actually leaked the story, because the way Greg Ip works is that he goes around and talks to each person and gets a little of the story and then builds it up in that way. Nevertheless, I think it is obviously bad for our institution when our internal deliberations become public, and so let me just ask everyone, please, to be especially careful about maintaining confidentiality. Thank you.
Copyright The Financial Times Limited . All rights reserved. Please don't copy articles from FT.com and redistribute by email or post to the web.