In an environment of price stability, economic agents may come to expect ever more strongly that a prolonged period of low interest rates would be sustained. This could exacerbate financial imbalances, such as increasing asset prices or leverage. Taken too far, such imbalances would destabilize the financial system, which would then lead to unacceptably large fluctuations of real economic activity and ultimately prices.
In this vein, monetary policy must take account not only of inflation but also of financial imbalances, and it must attempt to look beyond the conventionally accepted time horizon.