Great Recession and the FED’s failure to predict it
The Great Recession lasted from December 2007 until June 2009. It was unclear in mid-2008 that the economy was actually going to experience a severe recession, based on the information available at the time. The FMOC reacts to both current data and forecasts for what is to come in formulating its policy. In the following few pages, I’ll set out a narrative of what the FED discovered the economy was doing, and I’ll describe the policy actions it pursued to deal with the changes in the economy from June 2008 to December 2008. This was the midst of the Great Recession, though by looking at the statements from the FED, one wouldn’t tell. The statements from the Federal Open Market Committee in the months June, August and September show relatively ‘calm economic weather’ with a mildly negative outlook. It’s not until the unscheduled meeting of October 8 2008 that the committee mentions a financial crisis. In this narrative, you’ll find the statements from the first three months grouped together and the statements from the second three months grouped together.

June – September 2008
The press releases in June, August and September of 2008 are largely similar in terms of the message they convey, and even use the same sentences in big parts of the statements. In the following tables you’ll find a summary of the description of the current economic activity, the future economic expectations and the policies pursued by the FED. In the paragraphs below you’ll find further detail to the economic situation described in each statement. Current economy: | June 2008 | August 2008 | September 2008 | Economic activity | Continues to expand | Expanded in the second quarter | Economic growth appeared to have slowed | Labor markets | Continue to soften | Have softened further | Have weakened further | Financial markets |