Economics, Pethokoukis

As Great Recession started, Fed thought economic risks were to the ‘upside’

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The Great Recession officially started in December 2007. But it wasn’t clear back then that the US economy has begun to tumble into a deep downturn. At least not to the Federal Reserve, which just released its 2007 FOMC meeting transcripts. Here is Fed chief economist Dave Stockton:

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 more-frequent drug-testing for certain members of the senior staff, myself included. [Laughter] I can assure you, however, that the staff is not going to fall back on the increasingly popular celebrity excuse that we were under the influence of mind-altering chemicals and thus should not be held responsible for this forecast. No, we came up with this projection unimpaired and on nothing stronger than many late nights of diet Pepsi and vending-machine Twinkies.

Although the sharp swing in activity from the third to the fourth quarters is exaggerated by some wide fluctuations in inventory investment, we are reading the incoming data as suggesting that there has been a greater downshift in the underlying pace of growth than we had previously anticipated. Furthermore, we expect activity to remain sluggish next year, growing 1¼ percent, nearly ½ percentage point less than in our October projection. In 2009, real GDP is projected to grow at a 2.1 percent pace, a touch below our previous forecast. …

I still see the generally firm conditions in labor markets as suggesting some upside risk to our view that the economy is in the process of slowing sharply.

And yes, that joke in the beginning is likely to become infamous among Fed watchers.

9 thoughts on “As Great Recession started, Fed thought economic risks were to the ‘upside’

  1. “David J. Stockton, senior fellow at the Peterson Institute for International Economics, is also senior adviser at Macroeconomics Advisers LLC.”

    The irony never ends, doesn’t it? Here’s a guy who presided over an exploding deficit, and now he’s a fellow at the Peterson Institute.

  2. “Here’s a guy who presided over an exploding deficit, and now he’s a fellow at the Peterson Institute.”

    Hmm. So since when is the Fed in general and a functionary responsible for gathering and reporting forecasts from the various Fed regional banks, and housed in the Fed’s research and stats area responsible for deficits?

    • “Hmm. So since when is the Fed in general and a functionary responsible for gathering and reporting forecasts from the various Fed regional banks, and housed in the Fed’s research and stats area responsible for deficits?”

      They are not “responsible” for them- the Bush/Hubbard kleptocracy was- but the Fed is most certainly concerned with policy in this area.

      • Max,

        Your comments are most always too acerbic and partisan for my taste, but admittedly, many are at the same time, spot on.

        This time you are reaching. First you ascribe powers to the eponymous ‘they’ and then ascribe responsibilities to Stockton to which he wasn’t even remotely associated.

        Of course, the Fed, as an institution, is ‘concerned’ about an exploding deficit. As individuals, shouldn’t we all be concerned?

        • “This time you are reaching. First you ascribe powers to the eponymous ‘they’ and then ascribe responsibilities to Stockton to which he wasn’t even remotely associated.”

          Guess you missed the release of the minutes of the fed discussions of 2007- like the rest of the Bush administration, completely narcotized and brain dead.

          Pardon my cynicism, but belonging to the Peterson Foundation, which is dedicating to wiping out any social safety net in order to eradicate our national debt, while being a member of the Treasury while two wars and an unfunded Medicare mandate were passed through, sounds a bit incongruous.

          Guess you didn’t get the joke.

          “Of course, the Fed, as an institution, is ‘concerned’ about an exploding deficit. As individuals, shouldn’t we all be concerned?”

          Only when your candidate isn’t elected. Otherwise, “deficits don’t matter.” Guess you didn’t hear that one either.

          • Max has it right. All during the Bush years, where was the “concern” about these issues?

            After the economy cratered and became a smoldering financial mess – the wrist-wringing started – not for Bush and that Congress and their policy-makers but this POTUS whom they essentially blamed.

            this is how dysfunctional and myopic the critics of this POTUS have become.

      • They are not “responsible” for them- the Bush/Hubbard kleptocracy was- but the Fed is most certainly concerned with policy in this area“…

        Yet another idiotic but unsubstantiated whine by the maxie boy to no one’ssuprise…

        Obviously maxie boy is the point person for the Kenyan Kommie Klown’s repetitive excuses of blaming Bush…

  3. The minutes show that the Fed is clueless and is totally undeserved of the respect that it gets in the media and by the politicians. Note that while they were cheering the bubble formation and telling us that all was well the media was laughing at people like Rogers, Schiff, Faber, who saw what was happening and warned of the crisis to come. Yet, the cheerleaders still get all of the attention and respect while those that knew what was happening are still being ignored.

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