The expectation of a long period of accommodative monetary policy and low rates, during a period with sustained high rates of resource utilization, is conducive to risk-taking, providing incentives to reach for yield and take on additional debt.
To the extent that the combination of a low neutral rate, a flat Phillips curve, and low underlying inflation may lead financial imbalances to become more tightly linked to the business cycle, it is important to use tools other than monetary policy to temper the financial cycle.