As I described earlier, when demand is low, inflation tends to be below target. With price level targeting, the FOMC makes up for low inflation by using monetary policy to stimulate higher future inflation and higher future demand. But this prospect of higher future demand is an incentive for businesses to hire and invest more now.
That said, new and pending rules for housing finance should help mitigate this vulnerability. Last year, the government introduced stricter rules for high-ratio mortgages—that is, where the down payment is less than 20 per cent of the value of the home. These rules are continuing to improve the quality of new high-ratio mortgages.