By Jon Hilsenrath, Pedro Nicolaci da Costa,Ben Leubsdorf,Kate Davidson and Josh Zumbrun
Janet Yellen emerged in the Federal Reserve's 2009 transcripts
as a prescient forecaster of the dim outlook for the U.S. economy
following the 2007-09 recession and financial crisis.
The Federal Reserve on Thursday released transcripts of its
policy meetings, documenting fully for the first time its internal
debates at turning points in the aftermath of the financial crisis
that nearly wrecked the U.S. economy.
"The economic and financial news has been grim," Ms. Yellen said
at a crucial March 2009 policy meeting when the Fed ramped up
rescue programs. "Things are now so bad that I actually open [Fed's
staff] economic projections with greater trepidation than my
401(k)."
Ms. Yellen, who was then President of the Federal Reserve Bank
of San Francisco and went on to become Fed chairwoman in 2014,
offered at the March 2009 policy meeting a dire analysis of the
longer-run economic outlook--a view that proved correct on several
fronts.
"Some more-optimistic forecasters have argued that we're likely
to see a rapid 'V-shaped' recovery similar to the ones that
followed several past severe postwar recessions," she said. "But my
fear is that we may not even get a modest U-shaped recovery, much
less a V-shaped one."
She gave three reasons: Weak foreign economies, the limits of
Fed policies to stir economic growth and highly indebted
households.
The recovery did prove to be shallower than other post-World War
II recoveries, and Ms. Yellen continued to press her concerns at
Fed policy meetings and in the public for much of the rest of the
year. The concerns also animated her support for Fed easy money
policies aimed at boosting economic growth.
In April, she argued the economic outlook was "fraught with
peril."
"The unemployment rate currently is nine-and-a-half percent, and
this figure is likely to rise further. Moreover, even after the
economy begins to grow, it could still take several years to return
to full employment," Ms. Yellen said in a public speech in July
2009.
The Wall Street Journal has documented that Ms. Yellen correctly
foresaw a weak recovery at the early stages, a forecast that led
her to call for aggressive easy-money policies through much of the
aftermath of the crisis.
Still, even she under-estimated how long it would take for the
economy--and monetary policy--to get back to normal.
At one point in that March meeting, Ms. Yellen said the Fed
might be raising short-term interest rates by 2012. Rates today
remain near zero, where the Fed put them in December 2008. Ms.
Yellen is leading efforts to begin raising them later this
year.
The transcripts posted on the Fed's website also shed light on
how former Fed Chairman Ben Bernanke handled key decisions,
including a controversial move that March to ramp up a bond-buying
program known as "quantitative easing" that came to be one of
central bank's signature responses to the crisis.
Central bank officials began 2009 in a panic, scrambling to
rescue banks and launch rescue programs as financial markets and
stock prices tumbled. By year-end, Mr. Bernanke had been nominated
for another four-year term as Fed leader and named Time Magazine's
"person of the year" with an economic recovery appearing to be in
hand.
The National Bureau of Economic Research eventually pegged the
end of the recession in June 2009. The national unemployment rate
hit a peak of 10% in October 2009, then began to slowly decline.
And the Dow Jones Industrial Average bottomed out in March
2009.
The latest transcripts cover the 11 meetings--eight scheduled
and three unscheduled--in 2009 of the Fed's policy making Federal
Open Market Committee. The group releases a statement shortly after
each meeting announcing its policy decision, and three weeks later
releases minutes summarizing the meetings without identifying
individuals by name or quoting them. The Fed releases the FOMC
transcripts five years after the meetings, revealing for the first
time exactly what individual Fed officials said as they debated
policy.
Participating in the meeting are members of the Fed's
seven-member Washington-based board of governors, presidents of the
12 regional reserve banks and senior central-bank staff.
This year's release comes at potential inflection point for the
central bank as lawmakers consider a host of proposals that would
subject the Fed to additional congressional scrutiny or restructure
it. The new documents could shed new light on who was wrong and who
was right inside the central bank as it tried to find a way out of
crisis. That in turn could shape proposals on how Congress might
want to change it.
Write to Jon Hilsenrath at jon.hilsenrath@wsj.com and Josh
Zumbrun at Josh.Zumbrun@wsj.com