WASHINGTON — Transcripts of 2009 Federal Reserve meetings showed central bank officials struggling to contain the worst financial crisis in seven decades and searching for the right policies to halt a deepening economic downturn.
The transcripts released Wednesday revealed that officials were worried about the precedents being set by providing billions of dollars of government support to the nation's largest banks. They also searched for ways to provide support to an economy that seemed to be in free fall at the start of the year. Current Fed Chairwoman Janet Yellen was particularly spot-on in her predictions for a weak recovery and her insistence that the world's biggest economy needed more help.
During an emergency call on the morning of Jan. 16, 2009, after the government had announced a $20 billion bailout for Bank of America, then-Fed Chairman Ben Bernanke declared that he was unwilling to allow "the failure of a firm the size of Bank of America."
The call underscored the chaotic situation facing the Fed and other government agencies as they confronted a financial crisis that had ignited in September with the takeover of mortgage giants Fannie Mae and Freddie Mac and the collapse of Lehman Bros. in the largest bankruptcy in U.S. history. The Bush administration scrambled to assemble a $700 billion bailout fund that Congress approved to try to stabilize the financial system.
The country's economic downturn was hitting with full force in early 2009. The economy contracted sharply, with job losses averaging 774,000 in the first three months of the year and the Dow Jones Industrial Average plunging to a low of 6,440 on March 9.
By the April 28-29 meeting, transcripts show Fed officials took note of signs that the economy had stabilized somewhat.
Yellen, who at the time served as president of the Fed's San Francisco bank, called it a "welcome relief" that the economic data since the previous meeting, held in March, wasn't uniformly disappointing. But she cautioned against overreacting to the slightly better news, particularly since data about the job market was "appalling."
"I am particularly concerned that another shoe may drop," she said. "Confidence in global financial markets is extremely fragile, and more bad news could trigger another panic and run on the financial system."
Given the struggles the global economy has faced in the years since the Great Recession, Yellen's comments proved prescient.
Yellen's pessimism about the economy extended into June.
"The outlook over the next several years remains disturbing. … It's a sign of how bad things really are that near euphoria broke out with the announcement of 345,000 nonfarm jobs lost in May."
By the end of 2009, the transcripts showed that Fed officials saw signs that the economy was on the mend. Employers cut only 11,000 jobs in November, compared with a loss of 111,000 jobs in October.