As in the case of the policy responses made after the bursting of the bubble economy in Japan, if monetary policy measures are taken only after fluctuations in the financial cycle have become substantial, there is a risk that policy responses will become extremely difficult to implement at that point.
With a firming of monetary policy by the Federal Reserve widely expected, they built large short positions in long-term debt instruments in anticipation of the increase in bond yields that has been historically associated with a rising federal funds rate. But by summer, pressures emerged in the marketplace that drove long-term rates back down.