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Fair or unfair, Ben Bernankewould likely have made a lousy weather forecaster.
The Federal Reserve chairman is coming under scrutiny this week after the release of the full minutes of Fed meetings during 2006, Bernanke's first year in charge. Since Bernanke took over the agency, the housing market has wheezed along like a 110-year-old trying to run the Boston Marathon -- with equally predictable results: According to the Standard & Poor's Case Shiller Index, U.S. home prices have fallen by about 33% from 2006 to 2011.
Fed minutes from 2006 that have now been released reveal a sense of some concern about the unfolding housing story, but also misplaced optimism from the Fed and Bernanke as the crisis unfolded. (The Federal Reserve routinely makes summary versions of Fed meetings available within a few weeks of the meeting date, but the full release of the meetings usually doesn't appear for years.)
In fact, the words "wishful thinking" may be an accurate way to describe Bernanke's outlook on the housing market back in the early days of 2006. The minutes from those meetings tell the story -- and some of Bernanke's comments tell quite a story. Here are some of the more revealing statements made by Bernanke from eight meetings of the Federal Reserve's Open Market Committee in 2006:
"I agree with most of the commentary that the strong fundamentals support a relatively soft landing in housing," Bernanke said in his first meeti! ng as di rector in March 2006.
"I think we are unlikely to see growth being derailed by the housing market, but I do want us to be prepared for some quarter-to-quarter fluctuations," he said in the same meeting.
"So far we are seeing, at worst, an orderly decline in the housing market; but there is still, I think, a lot to be seen as to whether the housing market will decline slowly or more quickly," Bernanke said in May 2006.Bernanke's radar was on higher alert in June 2006, when he said there was "an asset price correction" in the housing sector. "Like any other asset-price correction, it's very hard to forecast, and consequently it's an important risk and one that should lead us to be cautious in our policy decisions," Bernanke added.
It was more of a mixed bag by September 2006, when there was more concrete evidence that the economy was sliding downhill at a faster rate. "I don't have quite as much confidence as some people around the table that there will be no spillover effect," Bernanke said. But Treasury Secretary Tim Geithner, also present, underplayed the threat. "We just don't see troubling signs yet of collateral damage and we are not expecting much," Geithner told board members.
There is no question Bernanke and Geithner have tough jobs, neither of which comes with a crystal ball. But if the release of these detailed minutes from discussions that took place just when the housing collapse was appearing on the horizon tell us anything, it's not to put economists on pedestals.
It turns out they're as fallible as the rest of us.
Predicting movements in the housing market is as inherently difficult as predicting anything at all. Check out our look at seven economic indicators to watch in 2012 to get a hint of which numbers matter!>To submit a news tip, email: tips@thestreet.com.
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