Why did growth fall more sharply than anticipated and what does this tell us about the new economy? Sharp slowdowns are often the result of three inter-related and reinforcing developments: a coincidence of adverse shocks, an unwinding of pre-existing imbalances triggered by the deterioration in broader macroeconomic conditions, and a collapse in consumer and business confidence.
The economy slowed in part, as I have noted, because monetary policy was committed to such an outcome. By mid-2000, it appeared that the economy, in response to the cumulative tightening over the previous year, was slowing toward trend. The Fed stopped tightening and private forecasters were projecting a "soft landing."