- The Washington Times - Tuesday, January 4, 2000

Wall Street markets nose-dived on the first business day of 2000 on expectations that the Federal Reserve soon will resume raising interest rates to cool America's steaming economy.
The Dow Jones Industrial Average fell as much as 200 points at the beginning of trading while fears that inflation could heat up quickly overtook any remaining worries that the year-2000 computer bug might massively disrupt world markets. The Dow ended
The rude awakening for American stocks was caused in part by rebounding markets elsewhere around the world where much-ballyhooed year-2000 problems failed to materialize. Experts had predicted major problems in places like Pakistan, India and Poland, causing investors to use American markets as a refuge.
Markets in London and Tokyo were closed for the day, but that did not prevent the French Ministry of Finance from declaring "all the great computer and electrical systems around the world successfully passed in the year 2000."
One Spanish business official questioned whether the whole problem had been fabricated.
"We think the media pressure worldwide has been excessive," Salvador Bellido told reporters in Europe. "We're beginning to think that all this has been set up for someone's benefit, I don't know if it was Bill Gates or who."
The glitch-free opening of business brought woes to the American markets because they had taken on the status of safe havens from the widely predicted year-2000 storm.
Stocks, bonds and the dollar all plunged and interest rates shot up sharply as foreign investors quickly withdrew their funds and those remaining in the markets were forced to focus on the likelihood of impending rate increases by the Fed.
A massive sell-off of Treasury bonds pushed yields to two-year highs as foreign investors took their money home.
In a sign that the Fed already is gearing up to impose more stringent policies, American banks yesterday were preparing to ship back much of the $50 billion in extra cash provided by the central bank as a backstop in case the new year brought a panicky run on deposits.
It was one of several extraordinary steps the Fed took to ensure a smooth transition for banks and securities markets. But the central bank also made clear in a late-December statement that such lenient policies were only temporary and that it would resume its rate-raising campaign if economic growth continued to accelerate and year-2000 changeover proved uneventful.
As 1999 ended, reports showed growth was picking up speed amid a major Christmas spending spree by consumers, while the stock market had resumed its climb to record heights undeterred by year-2000 fears.
The Fed most likely chose not to raise rates at a Dec. 21 meeting of its rate-raising committee because that could have added to "financial uncertainties and unsettlement surrounding the century date change," minutes from the Fed's November meeting revealed.
Among the concerns singled out by Fed officials, according to the minutes, were the inflated stock market, rising tobacco prices and growing health care costs. When added to last year's worldwide jump in oil prices, Fed officials feared the rising costs would drive up labor costs and set off an inflation spiral.
Adding to wariness on Wall Street about the Fed's intentions yesterday was a report showing a rise in the prices paid by manufacturers. The National Association of Purchasing Management said more manufacturers are reporting increases than declines in prices for raw materials.
That report helped send the Dow down by 140 points to 11,358, though the technology-laden Nasdaq composite index managed to overcome a 100-point loss to post another record high at 4,131.
A minor year-2000 glitch was reported by the Philadelphia Stock Exchange, where the date Jan. 3, 100 appeared on a Web site in the morning, but the problem was quickly repaired, officials said.
"The Y2K bug looks to have been largely eradicated, and while it will affect business activity randomly around the world, it was not the killer people feared," said Joel Naroff of Naroff Economic Advisors in New Holland, Pa.
"The economy ended the year on a high note," he said. "Without a Y2K deceleration, there is nothing to stand in the way of the economy continuing to boom and nothing to stop the Fed from tightening" at its next meeting Feb. 2.

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