Federal Reserve officials in August 2007 remained skeptical that housing foreclosures could cause a financial crisis, just days before the Fed was jolted into action, according to transcripts that the central bank published Friday.
Worries about the health of financial markets dominated a meeting of the Feds policymaking committee Aug. 7, but officials decided there was not yet sufficient evidence that the problems were affecting the growth of the broader economy.
Just three days later, the Feds chairman, Ben S. Bernanke, convened an early-morning conference call to inform them that the central bank had been forced to start pumping money into a financial system that was suddenly seizing up. More than five years later, the system remains heavily dependent on those pumps.
The market is not operating in a normal way, Bernanke said on that August call, in a moment of historic understatement. Its a question of market functioning, not a question of bailing anybody out. Thats really where we are right now.
The actual conversations from the Feds meetings are released once a year after a five-year delay. With a wealth of detail beyond the terse statements and formal minutes issued in the hours and weeks after the meetings, the transcripts provide fresh insights into the debates, actions and judgment of policymakers.
August 2007 was the month that the Fed began its transformation from somnolence to activism. Bernanke would continue to wrestle with misgivings about the extent of the Feds powers and about the limits of appropriate action. At times they would hesitate or move slowly. At times they even would reverse course, most importantly in standing by as Lehman Brothers collapsed the following year. But it is now widely accepted that their efforts helped to arrest the economic chaos unleashed by the financial crisis.