What is MacroWeb?

From 1998 to 2000 was the tail end of the longest expansion. The expansion started in March of 1991 and ended in March of 2001. The Dow Jones increased from 8000 in 1998 to almost 12,000 in January of 2000. This was an all time high. The NASDAQ went from under 2000 to over 5000 in this same period. This was also a record high. The gains were lead by technology stocks and "dot.com" companies. Many experts thought stocks were overinflated, a problem which would eventually cost investors much money. Alan Greenspan raised the federal funds rate five different times for an increase of 150 basis points. This was an attempt slow down the growing economy to prevent inflation. Greenspan thought the economy was at or above its potential capacity. A very small number of economists thought the economy was still under its potential capacity. They argued that raising the federal funds rate would mismatch the money supply from demand. This could eventually lead to deflation. The fed funds target rate started at 4.50% and ended at 6.00%. The actual fed funds rate stayed 50 basis points ahead of the target rate reflecting the high demand for money during this period. The discount target rate started at 4.75% and was increased six times to 6.50%. The actual discount rate lagged behind the target rate by 50 basis points. The unemployment rate reached a low of 3.9% in Sept of 2000, the lowest level since the 1960s. GDP grew 2% in the final quarter of 1999, the biggest single quarter growth since 1984. From 1998 to 2000, GDP increased almost 10%. The fed funds rate increases were effective at slowing the economy. GDP in 2000 increased at a smaller rate than in 1998 and 1999.

Who is Dave Tufte?

Copyright, John Brown, 2001.