Fed Previously Struggled with Bailouts and Bond-Buying

The Federal Reserve struggled with the message being sent by its role in bank bailouts and worried about the impact of a bond-buying program aimed at easing the 2007-2009 financial crisis, according to transcripts released by the U.S. central bank on Wednesday.  The transcripts from Fed meetings in 2009 reveal intense discussions on how to prop up the U.S. banking system and nurse an economy reeling from the biggest financial shocks since the Great Depression.

They also indicate that central bank officials anticipated a faster economic recovery and were laying out plans on how to exit the Fed’s stimulus program long before they were ready to make the transition.  In a prescient view of future policy, then-San Francisco Fed President Janet Yellen expressed concern about proposing an exit plan too soon.

“I want to emphasize that we have to be very careful not to signal an early end to policy stimulus,” Yellen said at a policy-setting meeting that June. “The outlook over the next several years remains disturbing,” added Yellen, who took over as Fed chief in February 2014.  The transcripts, released with a customary five-year lag, capture what was a tumultuous year for the U.S. economy. With the collapse of Wall Street firm Lehman Brothers in its rear-view mirror, Fed and other government officials were scrambling to avert further meltdowns in the financial system.


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