NEW YORK (TheStreet) -- The 2008 Federal Reserve transcripts that were released last Friday revealed that economic ideology hindered judgment by some members of the policy-making committee to foresee the impending financial collapse.
Central bankers who fought for tighter monetary policy during the year, like Kansas City Fed President Thomas Hoenig and Dallas Fed President Richard Fisher, repeatedly expressed their concern about rising inflation and that downside risks to the economy weren't as bad as other members argued.
"Some of them were mired in ideology," FAO Economics chief economist Robert Brusca said in a phone interview from New York. Brusca said the financial services sector was ripped apart in front of the so-called hawks' eyes and they failed to recognize it.
"It was just," Brusca paused, "wow."
Then-Chairman Ben Bernanke throughout 2008 had to consider the opinions of all his voting members so as to avoid making any of them feel alienated. Bernanke, who was far more negative than most of his colleagues about the state of the U.S. economy, knew that he had to build consensus in order to shift Fed policy toward looser monetary policy to offset the impending decline.
Hawkish members like Fisher, Hoenig or former St. Louis Fed President William Poole expressed their worry of lowering the federal funds rate at a time when they fundamentally believed inflation was rising too quickly. Poole complained in an emergency January meeting that the FOMC shouldn't raise rates in between scheduled meetings and that doing so would seem like the Fed reacting to a weakening stock market.