Although monetary policy from 2002 to 2006 appears to have been reasonably consistent with the Federal Reserve’s mandated goals of maximum sustainable employment and price stability, we have not yet addressed the possibility that accommodative policies – though perhaps appropriate for achieving medium-term inflation and output goals – inadvertently contributed to the housing bubble. I turn now to that question.
Monetary policy and the housing bubble To set the stage for the discussion, Slide 5 shows the annual increase in nominal house prices from 1978 to the present. 11 After some years of slow growth, U.S. house prices began to rise more rapidly in the late 1990s.