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IMF Puts Cost of Crisis Near $1 Trillion
Jaime Caruana of the International Monetary Fund spoke of a "very, very complex crisis."
(By Eugene Salazar -- Bloomberg News)
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"Many participants thought some contraction in economic activity in the first half of 2008 now appeared likely," the minutes said. Negative economic growth over six months would indicate a recession.
Chairman Ben S. Bernanke basically endorsed that view last week in congressional testimony, as he acknowledged the possibility of recession and said that the economy may not grow much "if at all" in the first half of the year.
Fed leaders consider the possibility of something even worse than that, according to the minutes. "Some participants expressed concern that falling house prices and stresses in financial markets could lead to a more severe and protracted downturn in activity than is currently anticipated," the minutes said.
Many at the Fed say the nationwide drop in home prices could put the economy in uncharted territory, as there are no clear precedents for how consumers will respond.
But the minutes also show worry about inflation, and two members of the Federal Open Market Committee, Philadelphia Fed President Charles I. Plosser and Dallas Fed President Richard W. Fisher, dissented from the decision.
"Fisher and Plosser were concerned that inflation expectations could potentially become unhinged should the Committee continue to lower the funds rate in this environment," the minutes said. Plosser argued that if the Fed waited for clearer evidence of rising inflation expectations, it could be too late.
Also yesterday, former Fed chairman Paul A. Volcker discussed the unusual intervention by the central bank in the workings of Wall Street last month, including the rescue of investment bank Bear Stearns.
The Fed took actions "that extended to the very edge of its lawful and implied power, transcending certain long embedded central banking principles and practices," Volcker said in a speech to the Economic Club of New York.
And Alan Greenspan, in an interview on CNBC, said the nation is "in the throes of a recession," as he defended the decisions he made when he was Fed chairman.
