U.S. Fed underestimated crisis risk in 2007

Jan 18, 2013, 2:40 PM EST
U.S. Federal Reserve Chairman Ben Bernanke speaks during a news conference in Washington in this December 12, 2012 file photogra
REUTERS/Kevin Lamarque/Files

Top officials at the U.S. Federal Reserve took months to realize the 2007 financial crisis would be as severe as it turned out to be, according to newly-released transcripts of the Federal Open Market Committee’s 2007 meetings. The transcripts reveal that some Fed policy makers viewed the crisis, which erupted in August 2007 on the back of problems in the market for subprime mortgage loans, as a welcome sign markets were pricing in more risk. The records raise a question of whether the recession would have been less severe if the Fed had reacted faster instead of continuing to forecast steady growth.