Despite signs of trouble for the nation’s overheated housing market in 2006, there was plenty of banter and laughter around the big mahogany and granite table inside the Federal Reserve where top policymakers gathered one day in March.
Running his first meeting as chairman of the central bank, Ben S. Bernanke, in his collegial style, solicited observations about the economy from colleagues. Some of the Fed’s staff earlier had talked about the potential risks, but in that meeting and in subsequent ones that year, there was a glaring absence of alarm about the dangers of the housing bubble and what might lie ahead for the broader economy.
Instead, concerns about a housing bust were largely dismissed by most officials, according to meeting transcripts released Thursday.
“We believe that, absent some large, negative shock to perceptions about employment and earned income, the effects of the expected cooling in housing prices are going to be modest,” said Timothy F. Geithner, the current Treasury secretary, who then was president of the Federal Reserve Bank of New York.
When Geithner was finished, Bernanke asked, to a round of laughter, “Anything to report on co-op prices in Manhattan?”
“As in many cases, I am not sure what you can take from the anecdote, but I guess some people say that you see a little of the froth dissipating,” Geithner replied. “But I don’t think the adjustment is acute.
“If you see hiring at the New York Fed go up substantially in the market, that will be a good leading indicator of housing prices reverting somewhat,” he said, prompting more laughter.
Bernanke, now in his second term as Fed chairman, as well as some other policymakers previously have acknowledged the central bank’s failure in picking up warning signals of a housing market hurtling toward disaster.
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