by: David Wessel
July 18, 2012
Five years ago, July 18, 2007, Federal Reserve Chairman Ben Bernanke testified before the House Financial Services Committee as he is today. The housing bubble was bursting, cracks in the global financial system were just beginning to appear, but Bernanke didn’t sound terribly worried or prescient.
There was a lot of talk about housing, subprime mortgages and related regulation. No one, neither the chairman nor the members of the committee, raised the possibility that the U.S. might be on the verge of recession or a financial crisis that would rival the Great Depression. A month later, the Fed would make the first of a series of extraordinary moves to avoid an economic calamity. But none of that was yet evident.
A look back at what Bernanke said then.
On the economic outlook:
“Overall, the U.S. economy appears likely to expand at a moderate pace over the second half of 2007 with growth then strengthening a bit in 2008 to a rate close to the economy’s underlying trend. Such an assessment was made around the time of the June meeting of the Federal Open Market Committee… The central tendency of the growth forecast… is for real GDP to expand roughly 2.25% to 2.5% this year and 2.5% to 2.75% in 2008. ….The unemployment rate is anticipated to edge up between 4.5% and 4.75% over the balance of this year and about 4.75% percent in 2008.”
(NOTE: The recession began five months later, in December 2007, and lasted until June 2009. For the full year 2007, GDP grew by 1.7%. In 2008, it shrank by 0.3%, and shrank another 3.5% in 2009. Unemployment hit 5% in December 2007 and by December 2008 had risen to 7.3% and kept climbing.)