Captura de pantalla 2014-02-25 a la(s) 18.02.04

Today, the Federal Reserve released transcripts from the 2008 Federal Open Market Committee meetings.

The transcripts offer a striking account of the FOMC’s deliberations (and inaction) at a time when the economy had already fallen into recession.

By December 2007, the U.S. economy had fallen into recession, according to ex-post dating of the business cycle by the National Bureau of Economic Research.

This was not yet apparent in January 2008, and a FOMC conference call that month illustrated why it’s so difficult to predict recessions before they happen.

“Our forecast isn’t just some sort of ‘push a button on a linear model and here is the result’,” said then-FOMC chief economist David Stockton on the call.

“But I do think the current situation illustrates to me why it is, in fact, so hard for us and why we don’t forecast recessions very often. As I indicated, I think there is a configuration of a number of indicators that make it easy for me to imagine you looking back on next June and saying, ‘Indeed, what you saw back there in December—in terms of the jump in the unemployment rate, the drop in the manufacturing ISM, and the uptick in initial claims—were all precursors of a recession.’ The point of my remarks is that I am pretty darn worried about that possibility. But it is hard at this point to make that call—we are coming off the data in the fourth quarter, which have exceeded our expectations considerably.”

The chart below, taken from a survey of 222 fund managers responsible for a collective $591 billion in assets under management conducted by BofA Merrill Lynch between Feb. 7 and Feb. 13, 2014, shows where investors think we are in the global economic cycle right now.

It also shows where survey respondents thought the global economy was in January 2008. At the time, more people thought the global economy was either in a mid-cycle or a late-cycle stage, and very few thought we were in a recession.


“With respect to the economic cycle, 60% of investors think the global economy is currently in mid-cycle,” says Michael Hartnett, chief investment strategist at BofA Merrill Lynch.

“Only 1% thinks we are in recession.”

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