They laughed about the cars that builders were giving to buyers. They laughed about efforts to make empty homes look occupied. They laughed at a report that one builder said inventory was rising “through the roof.”

The officials, meeting every six weeks as the central bank’s top policy committee to discuss the health of the nation’s economy, did not seriously consider the possibility that problems in the housing market would send the nation into recession.

“We think the fundamentals of the expansion going forward still look good,” Timothy F. Geithner, then president of the Federal Reserve Bank of New York, told his colleagues when they met in December 2006.

By then the economy had started to contract by at least one important measure, the level of gross domestic income, and by the end of the following year the Fed had begun its desperate struggle to prevent the collapse of the financial system and the onset of the first full-fledged depression in almost a century.

The transcripts of the Fed’s Open Market Committee meetings in 2006, released after a standard five-year delay, suggest that some of the nation’s pre-eminent economic policy makers did not fully understand the basic mechanics of the economy that they were charged with supervising. The problem was not a lack of information; it was a lack of comprehension, born in part of their deep confidence in models that turned out to be broken.

“It’s embarrassing for the Fed,” said Justin Wolfers, an economics professor at the University of Pennsylvania. “You see an awareness that the housing market is starting to crumble, and you see a lack of awareness of the connection between the housing market and financial markets.”

“It’s also embarrassing for economics,” he continued. “My strong guess is that if we had a transcript of any other economist, there would be at least as much fodder.”

The transcripts show that Fed officials were aware the housing market had most likely reached a peak as the year began.

“The bigger question now is whether we will experience the gradual cooling that we are projecting or a more pronounced downturn,” said the Fed’s staff forecast, which was presented at the beginning of the January meeting.

The transcripts are unlikely to burnish the reputation of any Fed officials, inasmuch as none of them was able to see the problems already undermining the economy. But the Fed’s chairman, Ben S. Bernanke, appears as the most consistent voice of warning that problems in the housing market could have broader consequences.

At his first meeting as chairman, in March, he said “Again, I think we are unlikely to see growth being derailed by the housing market.”

As the year rolled along, however, he grew increasingly concerned.

The general consensus on the board, summarized by Mr. Geithner, was that problems in the housing market had few broader ramifications.

“We just don’t see troubling signs yet of collateral damage, and we are not expecting much,” he said at the September meeting.

Mr. Bernanke increasingly took the view that his colleagues were too sanguine.

”I don’t have quite as much confidence as some people around the table that there will be no spillover effect,” he said.

The consequences that he described, however, amounted to nothing like the chaos about to unfold.

Evidence of the decline accumulated with each subsequent meeting.

“We are getting reports that builders are now making concessions and providing upgrades, such as marble countertops and other extras, and in one case even throwing in a free Mini Cooper to sweeten the deal,” George C. Guynn, then president of the Federal Reserve Bank of Atlanta, told colleagues at their June 2006 meeting.

“The speed of the falloff in housing activity and the deceleration in house prices continue to surprise us,” Janet Yellen, then president of the Federal Reserve Bank of San Francisco, said three months later.

One builder she spoke with, she said, “toured some new subdivisions on the outskirts of Boise and discovered that the houses, most of which are unoccupied, are now being dressed up to look occupied — with curtains, things in the driveway, and so forth — so as not to discourage potential buyers.”

But other members of the board saw evidence that the housing downturn would be brief and relatively mild.

Indeed, some members of the board argued that a housing slowdown would be good for the broader economy.

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