How Fed misjudged housing bubble in 2006

Yet another reminder of how the experts can get it wrong, big time. Fed officials were indeed concerned about a housing slowdown in 2006, but newly released transcripts of that year's meetings indicate little fear about the prospect of a major implosion. From the FT:

Almost every Fed policymaker concluded that weaker housing would cause a slowdown in consumption and investment, but expected that to offset strength elsewhere in the economy, leading to continued growth overall. "Housing is the crucial issue. To get a soft landing, we need some cooling in housing," said Ben Bernanke, Fed chairman, in his summing up of the economic situation in March 2006. "I think we are unlikely to see growth being derailed by the housing market."

A classic group-think brain freeze. As we've been discovering, there were any number of warning signals sounded by individual investors and a scattering of economists, but they were drowned out by an unrelentingly bullish market.