July 05, 2000

The early stages of the millennium bug (i.e., the second half of last year) had a significant effect on aggregate demand, individuals and businesses that had been preparing for the worst had accelerated much of their planned purchases into 1999. This led to stronger-than-expected real GDP growth. But to the extent that the millennium bug caused a temporal shift, we expect the economy during 2000 to work off the accumulated inventory. Thus, our view is that much of the current economic slowdown is attributable to Y2K. If that is the case, then it follows that the Fed has not had much impact on the real GDP growth rate.

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