E C O N O M I C R E P O R T O F T H E P R E S I D E N T

Inflation expectations remained low and stable throughout the year, supportingrestraint in wage and price setting. According to the Michigan Survey ofConsumers, the median expectation over the next 5 to 10 years is for inflationunder 3 percent; that figure changed little over the year. Similarly, professionalforecasters’ expectations of long-term inflation continue to be low and stable,according to a survey conducted by the Federal Reserve Bank of Philadelphia.Financial MarketsBy comparison with the tumultuous events of the preceding year, 1999 wasa relatively tranquil year for financial markets. Even the looming century datechange and the potential it posed for Y2K-related disruptions did not seem tounsettle the markets (Box 2-2). The Federal Reserve raised the target FederalBox 2-2. Economic Impact of Y2K PreparationsOne of the most anticipated events of the past year was the rolloverfrom the year 1999 to 2000. The public and the private sectors in theUnited States and abroad devoted enormous resources to ensure thatthe Y2K bug did not spoil the new year. Moreover, anecdotal evidencesuggests that businesses and households stocked up near the end of theyear as a precaution against supply shortages. In the end these preparationspaid off, and only minor Y2K-related glitches were reported.Potential Y2K disruptions involving information systems in the financialsector both in the United States and abroad had been a central concernwell before the century date change. The smooth and efficientoperation of financial markets and the banking sector relies on theextensive use of computers for record keeping, data exchange, andelectronic transactions. The Federal Reserve and the President’s Councilon Year 2000 Conversion tracked efforts by financial institutions toensure that records would be accurately maintained and that operationswould continue running smoothly over the transition to the newmillennium.To allay concerns about a year-end shortage of liquid assets, the FederalReserve took steps to assure markets that adequate liquidity wouldbe available. The Fed also acted to ensure that sufficient quantities ofcash would be available to the public at year’s end. It was widelybelieved that many people intended to withdraw abnormally largeamounts of cash near the end of the year, as a precaution against Y2Krelatedglitches at banks and automatic tellers. In anticipation of thisrise in demand for cash, the Federal Reserve increased its order for currencythrough September by over 50 percent from the previous year.The Fed also implemented measures making it easier for banks toorder and take delivery of cash. Public cash holdings rose by about 5percent in December, an amount easily accommodated.64 | Economic Report of the President