Fed in 2007 slow on the uptake

Jan. 21, 2013 at 2:15 PM
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WASHINGTON, Jan. 21 (UPI) -- U.S. Federal Reserve officials tried to steer clear of the word recession at policy meetings through much of 2007, meeting transcripts show.

The official start of the greatest economic downturn since the Great Depression -- frequently referred to as the Great Recession -- was December 2007.

In the months leading to that point, officials had discussed the symptoms of the recession. But the word "recession" does not appear in transcripts until the summer of 2007, The Washington Post reported Monday.

One official referred to it as "the R word," reflecting the idea that acknowledging an economic contraction was difficult.

When it became clearer that the economy was in trouble, Fed officials then discussed whether or not they should use the word publicly, given the point that a declaration from the Fed could have been premature and seriously jolted the investment community.

"The best guidance would be that we must not ourselves become a tripwire. I rather liked the reference to the Hippocratic oath earlier, 'Do no harm,'" said Dallas Fed President Richard Fisher at the August 2007 policy meeting.

Some officials were becoming increasingly concerned. Janet Yellen, the San Francisco Fed president at the time, said in December her optimism was "severely shaken."

Frederic Mishkin, who was a Fed governor at that time, said he was "very, very worried." And Eric Rosengren, who was then a Fed governor, said he had agreed with Yellen. He joked that he and Yellen had taken a "pessimism pill," the newspaper reported.

Fed Chairman Ben Bernanke, who has said he was slow to recognize how severe the downturn would be, said in December, "You can tell that I am quite conflicted about it [about making a large interest rate cut], and I think there's a good chance we may have to move further in subsequent meetings."

A large interest rate cut would show "more concern ... about the economy that we in fact don't necessarily have," he said.

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