Last week the Federal Reserve released the minutes from the most recent Federal Open Market Committee (FOMC) meeting (January 28-29), as well as transcripts from the meetings held in calendar 2008. (Minutes are released 3 weeks after the conclusion of the meetings, transcripts are released for the entire year with a five year lag.) These accounts represent the bookends of Fed policy from the beginning of the financial crisis to the evolution of that policy to date.
The transcripts from the 2008 meetings provide a detailed look at the deliberations surrounding the critical events of the crisis: the rescue of Bear Stearns, the bankruptcy of Lehman Brothers, the American International Group (AIG) bailout, as well as the beginning of the series of extraordinary lending and credit facilities used by the Fed to keep the US and global financial system functioning (2008 transcripts).
The decision to let Lehman Brothers fail has been the subject of criticism, defenses and memoirs among the primary figures of global finance at the time. The transcripts present the perspectives of FOMC members as event unfolded.
The minutes from the January meeting offer a view of the discussions among FOMC members regarding the winding down of the two currently most prominent policy tools: the federal funds rate and the third incarnation of quantitative easing (January minutes).
The key points from the January meeting include: that economic growth and the labor market are continuing to recover; this allows for a continuation of the measured reductions in the asset purchase program; and, with the 6.5% unemployment rate threshold nearly reached, a change in forward guidance to effectively communicate the anticipated path for the federal funds rate is necessary.
The most appropriate information to include in the forward guidance remains the subject of debate, ranging from a new quantitative target to additional language characterizing the health of financial markets. These differences regarding forward guidance were in contrast to reductions in asset purchases, where the broad consensus was for modest reductions at each meeting, absent any significant change in economic conditions.
With the dust settled from the height of the crisis, the consensus among economists is that overall Fed policy prevented a more severe economic downturn. The impact and timing of individual decisions will continue to be debated, but the end result was unambiguously positive for the economy.