New View Into Fed's Response To Crisis
Two days after U.S. officials decided to let Lehman Brothers collapse in September 2008, and just before the Federal Reserve unleashed a torrent of programs to bolster the financial system, central-bank officials were still struggling to grasp the magnitude of the calamity that had hit the economy.</br></br>"I think that our policy is looking actually pretty good," Fed Chairman Ben Bernanke said of the level of interest rates at a closed-door Fed policy meeting on Sept. 16, 2008, according to transcripts of its policy meetings that were released Friday after the traditional five-year lag.</br></br>Officials decided at the meeting to hold interest rates steady at 2%. It was one of Mr. Bernanke's last moments of passivity in the financial crisis.</br></br>As he spoke, the Fed was moving ahead with plans to help bail out American International Group Inc., the large failing insurer seen as crucial to the financial system. Within days Mr. Bernanke and Treasury Secretary Henry Paulson would go to Congress and make an urgent plea for a bank-bailout plan. By year-end, the Fed chairman had pushed a still-hesitant central bank toward an unprecedented experiment with easy-money policies aimed at reviving the economy.</br></br>The Fed transcripts, 1,865 pages documenting one of the most turbulent economic times in the nation's history, covered eight formal and six emergency policy meetings the central bank conducted in 2008. They provide the most complete view yet into developments inside the nation's central bank as the financial crisis worsened and threatened to plunge the U.S. into another Great Depression.