Fomc Meeting Quotes

At its August 7, 2007, meeting, the FOMC had concluded that 'although the downside risks to growth have increased somewhat, the Committee's predominant policy concern remains the risk that inflation will fail to moderate as expected.' How's that going?, many of us thought when we read the statement. The predominant concern is inflation? Many Fed watchers blinked in disbelief. What were those guys thinking?

In response to current events, people often reach for historical analogies, and this occasion was no exception. The trick is to choose the right analogy. In August 2007, the analogies that came to mind—both inside and outside the Fed—were October 1987, when the Dow Jones industrial average had plummeted nearly 23 percent in a single day, and August 1998, when the Dow had fallen 11.5 percent over three days after Russia defaulted on its foreign debts. With help from the Fed, markets had rebounded each time with little evident damage to the economy. Not everyone viewed these interventions as successful, though. In fact, some viewed the Fed’s actions in the fall of 1998—three quarter-point reductions in the federal funds rate—as an overreaction that helped fuel the growing dot-com bubble. Others derided what they perceived to be a tendency of the Fed to respond too strongly to price declines in stocks and other financial assets, which they dubbed the “Greenspan put.” (A put is an options contract that protects the buyer against loss if the price of a stock or other security declines.) Newspaper opinion columns in August 2007 were rife with speculation that Helicopter Ben would provide a similar put soon. In arguing against Fed intervention, many commentators asserted that investors had grown complacent and needed to be taught a lesson. The cure to the current mess, this line of thinking went, was a repricing of risk, meaning a painful reduction in asset prices—from stocks to bonds to mortgage-linked securities. “Credit panics are never pretty, but their virtue is that they restore some fear and humility to the marketplace,” the Wall Street Journal had editorialized, in arguing for no rate cut at the August 7 FOMC meeting.

I worked for one of those who pushed back against the majority. He was the lone member of the FOMC who voted against the professor’s theories at that fateful meeting. He fought the good but lonely fight, and I, in my capacity as trusted adviser, waged many a battle with him. But the sad truth is we lost the people’s war. In a world rendered unsafe by banks that were too big to fail, we came to understand the Fed was simply too big to fight. I wrote this book to tell from the inside the story of how the Fed went from being lender of last resort to savior—and then destroyer—of America’s economic system.

. At FOMC meeting breaks he would inhale doughnuts, but nevertheless remained slim.)