Transcripts Show Fed Scrambled to Launch Rescue Programs in 2009

Janet Yellen emerged in the Federal Reserve's 2009 transcripts as a prescient forecaster of the dim outlook for the U.S. economy following the 2007-09 recession and financial crisis.

The Federal Reserve on Thursday released transcripts of its policy meetings, documenting fully for the first time its internal debates at turning points in the aftermath of the financial crisis that nearly wrecked the U.S. economy.

"The economic and financial news has been grim," Ms. Yellen said at a crucial March 2009 policy meeting when the Fed ramped up rescue programs. "Things are now so bad that I actually open [Fed's staff] economic projections with greater trepidation than my 401(k)."

Ms. Yellen, who was then President of the Federal Reserve Bank of San Francisco and went on to become Fed chairwoman in 2014, offered at the March 2009 policy meeting a dire analysis of the longer-run economic outlook--a view that proved correct on several fronts.

"Some more-optimistic forecasters have argued that we're likely to see a rapid 'V-shaped' recovery similar to the ones that followed several past severe postwar recessions," she said. "But my fear is that we may not even get a modest U-shaped recovery, much less a V-shaped one."

She gave three reasons: Weak foreign economies, the limits of Fed policies to stir economic growth and highly indebted households.

The recovery did prove to be shallower than other post-World War II recoveries, and Ms. Yellen continued to press her concerns at Fed policy meetings and in the public for much of the rest of the year. The concerns also animated her support for Fed easy money policies aimed at boosting economic growth.

In April, she argued the economic outlook was "fraught with peril."

"The unemployment rate currently is nine-and-a-half percent, and this figure is likely to rise further. Moreover, even after the economy begins to grow, it could still take several years to return to full employment," Ms. Yellen said in a public speech in July 2009.

The Wall Street Journal has documented that Ms. Yellen correctly foresaw a weak recovery at the early stages, a forecast that led her to call for aggressive easy-money policies through much of the aftermath of the crisis.

Still, even she under-estimated how long it would take for the economy--and monetary policy--to get back to normal.

At one point in that March meeting, Ms. Yellen said the Fed might be raising short-term interest rates by 2012. Rates today remain near zero, where the Fed put them in December 2008. Ms. Yellen is leading efforts to begin raising them later this year.

The transcripts posted on the Fed's website also shed light on how former Fed Chairman Ben Bernanke handled key decisions, including a controversial move that March to ramp up a bond-buying program known as "quantitative easing" that came to be one of central bank's signature responses to the crisis.

Central bank officials began 2009 in a panic, scrambling to rescue banks and launch rescue programs as financial markets and stock prices tumbled. By year-end, Mr. Bernanke had been nominated for another four-year term as Fed leader and named Time Magazine's "person of the year" with an economic recovery appearing to be in hand.

The National Bureau of Economic Research eventually pegged the end of the recession in June 2009. The national unemployment rate hit a peak of 10% in October 2009, then began to slowly decline. And the Dow Jones Industrial Average bottomed out in March 2009.

The latest transcripts cover the 11 meetings--eight scheduled and three unscheduled--in 2009 of the Fed's policy making Federal Open Market Committee. The group releases a statement shortly after each meeting announcing its policy decision, and three weeks later releases minutes summarizing the meetings without identifying individuals by name or quoting them. The Fed releases the FOMC transcripts five years after the meetings, revealing for the first time exactly what individual Fed officials said as they debated policy.

Participating in the meeting are members of the Fed's seven-member Washington-based board of governors, presidents of the 12 regional reserve banks and senior central-bank staff.

This year's release comes at potential inflection point for the central bank as lawmakers consider a host of proposals that would subject the Fed to additional congressional scrutiny or restructure it. The new documents could shed new light on who was wrong and who was right inside the central bank as it tried to find a way out of crisis. That in turn could shape proposals on how Congress might want to change it.

Write to Jon Hilsenrath at jon.hilsenrath@wsj.com and Josh Zumbrun at Josh.Zumbrun@wsj.com