Fed chairman Ben Bernanke has acknowledged that he was in error when he forecast that the subprime-mortgage crisis, and the resulting credit crunch, could be contained, according to a feature story in the latest New Yorker magazine.
“I and others were mistaken early on in saying that the subprime crisis would be contained,” he said.
On Feb. 28, 2007, Mr. Bernanke testified before the House Budget Committee that he expected moderate growth and that the economy should begin to rebound by the end of the year (InvestmentNews, Feb. 28, 2007).
During the hearing, the Fed chairman had also described the housing slowdown as not “being a broad financial concern or a major factor in assessing the state of the economy.”
“The causal relationship between the housing problem and the broad financial system was very complex and difficult to predict,” Mr. Bernanke said in The New Yorker story.
It was not until Sept. 18, 2007, that the Federal Reserve starting cutting interest rates in response to the slowing economy. In the last 14 months the federal funds rate has been slashed 4.25 percentage points from 5.25% to 1%.
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