Fed PolicyInvestments

New FOMC minutes reveal tough calls in 2008

Fed presidents unsure of what could happen

The Federal Reserve released the minutes from 2008 at the Federal Open Market Committee and gave a look inside the monetary decisions taking place during the worse economic downturn in a generation.

The motivation for the release being delayed indicates a desire to avoid further market disruption. It is well known that in 2008, people feared the worst.

In August, the following is reported: The members showed an underestimation of the length of time it would take for macroeconomic conditions to begin to correct:

"Tight credit conditions, the ongoing housing contraction, and elevated energy prices are likely to weigh on economic growth over the next few quarters," the minutes state. "Over time, the substantial easing of monetary policy, combined with ongoing measures to foster market liquidity, should help to promote moderate economic growth."

In other moments, the tension can be felt clearly. Here's how then-chair Ben Bernanke opened the September 16 gathering.

"Good morning, everybody. Sorry for the late beginning," he said. "The markets are continuing to experience very significant stresses this morning, and there are increasing concerns about the insurance company AIG."

But that wasn't all. Stocks were tumbling. And worse, Lehman Brothers filed for bankruptcy.

William Dudley, of the New York Federal Reserve noted the need to buffer the ever-expanding wake this created.

"The Lehman failure means that investors now view the debt of Morgan Stanley and Goldman Sachs as having much more risk than it did on Sunday," said Dudley. "This means that these firms need bigger liquidity buffers than they had before, and it does have implications for long-term profitability."

Later, Boston Federal Reserve President Eric Rosengren raised concern on State Street Bank and indicated that the Fed reaction would be more standoffish. It was a tough call, and Rosengren was not able to predict the outcome.

"They asked us what our position was, and we told them that they needed to make their own business decision in this case," he said.

"I haven’t heard what has happened this morning. I assume that they are scrambling for funds," he added. "But I would emphasize that a real concern is that there will be a run this week on money market funds because they may have to freeze the funds. It is possible that they will break the buck, and this will be at organizations that don’t have sufficient capital to make people whole. So I think that is a real concern."

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