9 Moreover, if accommodative monetary policy engendered extrapolative expectations and speculation starting in 2003, why did it not restrain these factors after mid2004 as the federal funds rate was increased? Tightening should have limited the extent to which households (especially those using variable-rate mortgages) were able to borrow, thereby slowing the pace of house price appreciation.
Furthermore, many of the worst subprime loans were made after the federal funds rate had normalized, and reflected a wide array of deficiencies in the financial markets. The contrasting movement of short-run and long-term interest rates over this period further complicates any assessment of the link between monetary policy and the housing market.