Top policymakers at the Federal Reserve felt for most of 2007 that problems in housing and banking were isolated and unlikely to tear down the U.S. economy as they ultimately did.
Even as crisis signals started flashing red with the freezing of credit markets during the summer, Fed officials believed the troubles would be moderate and short-lived, according to transcripts of the 2007 meetings released on Friday after the customary five-year lag.
... The Fed began an unprecedented monetary easing campaign in August 2007, but failed to fully appreciate the magnitude of the problem arguably until a year later, when the failure of Lehman Brothers accelerated the financial meltdown.
Here's a prediction: they'll miss the signs of the next crisis (Fed printing money) too.