dailymarkets.com / By Larry Doyle / updated January 19, 2013
If anybody thinks that the governors of the Federal Reserve have any degree of foresight on the economy, the following transcripts from 2007 are a MUST read. One governor, (yes one and it was not Ben Bernanke), displayed some prescient foresight and expressed real concern on what likely lay ahead on our economic landscape. Who was it? The one I recently highlighted as calling for the breakup of our TBTF megabanks. That would be Dallas Fed governor Richard Fisher.
After reading this release provided by the WSJ, you may doubt the Fed’s collective capability in managing the economy.
Fed meeting transcripts are released with a five year lag. Here is a look at the three key periods of 2007, and what central bank officials were saying during this period:
I) PRELUDE, BEFORE THE CRISIS, January-May:
Jan. 30-31 Fed Chairman Ben Bernanke: “The housing market has looked a bit more solid, and the worst outcomes have been made less likely.
But given that we have the breathing space to observe how that evolves, I think that waiting a bit more would be wise.”
Jan. 30-31 Janet Yellen, San Francisco Fed President. “I think we should maintain the current stance of policy because it is likely to foster an economy that gradually moves toward a soft landing… Housing remains a concern, but I think the prospects for a really serious housing collapse that spreads to consumer spending have diminished substantially.”
Jan. 30-31, New York Fed President Timothy Geithner: “The most important thing for us to do today, and it’s really the only thing we need to do, is to convey a sense that, on the basis of recent data, we see somewhat less downside risk to growth and maybe somewhat less upside risk to inflation.”
Jan. 30-31, William Dudley, Manager, System Open Market Account on subprime risk: “The most recent 2006 vintage of subprime mortgages is showing a much more rapid rise in delinquencies than earlier vintages showed … I see some risk of a vicious cycle … Fortunately, to date the news is still fairly favorable … the economics of making such loans and securitizing them into the capital markets still work.
Jan. 30-31, Mr. Geithner, questioning Mr. Dudley on subprime: “Remind us what share of the total outstanding stock of mortgages consists of subprimes or what share of the housing stock do we think is financed at the subprime level? My recollection is that the share is still small even though it has been a large part of the recent flows.”
Dudley responds: “It’s quite a bit smaller share of total outstanding.”
March 20-21, Mr. Bernanke “The central scenario that housing will stabilize sometime during the middle of the year remains intact…The effects of the decline in subprime lending may have already been mostly seen, since that has slowed from last fall.”
March 20-21, Ms. Yellen: “The extraordinary run-up in house prices in recent years led to construction and sales booms that couldn’t last. So far the adjustments to more-sustainable levels of housing starts and sales have been relatively orderly.
May 9, Mr. Bernanke: “We’re not blind to current economic developments. Nevertheless, we have good fundamental reasons to think that growth will be moderate.”
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