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CREDIT EXPANSION 

But elsewhere the economy remained sluggish, and employment gains were frus-
tratingly small. Experts began talking about a “jobless recovery”—more production
without a corresponding increase in employment. For those with jobs, wages stag-
nated. Between  and , weekly private nonfarm, nonsupervisory wages actu-
ally fell by  after adjusting for inflation. Faced with these challenges, the Fed
shifted perspective, now considering the possibility that consumer prices could fall,
an event that had worsened the Great Depression seven decades earlier. While con-
cerned, the Fed believed deflation would be avoided. In a widely quoted  speech,
Bernanke said the chances of deflation were “extremely small” for two reasons. First,
the economy’s natural resilience: “Despite the adverse shocks of the past year, our
banking system remains healthy and well-regulated, and firm and household balance
sheets are for the most part in good shape.” Second, the Fed would not allow it. “I am
confident that the Fed would take whatever means necessary to prevent significant
deflation in the United States. . . . [T]he U.S. government has a technology, called a
printing press (or, today, its electronic equivalent), that allows it to produce as many
U.S. dollars as it wishes at essentially no cost.” 
The Fed’s monetary policy kept short-term interest rates low. During , the
strongest U.S. companies could borrow for  days in the commercial paper market
at an average ., compared with . just three years earlier; rates on three-month
Treasury bills dropped below  in mid- from  in . 
Low rates cut the cost of homeownership: interest rates for the typical -year
fixed-rate mortgage traditionally moved with the overnight fed funds rate, and from
 to , this relationship held (see figure .). By , creditworthy home buy-
ers could get fixed-rate mortgages for .,  percentage points lower than three
years earlier. The savings were immediate and large. For a home bought at the me-
dian price of ,, with a  down payment, the monthly mortgage payment
would be  less than in . Or to turn the perspective around—as many people
did—for the same monthly payment of ,, a homeowner could move up from a
, home to a , one. 
An adjustable-rate mortgage (ARM) gave buyers even lower initial payments or
made a larger house affordable—unless interest rates rose. In , just  of prime
borrowers with new mortgages chose ARMs; in ,  did. In , the propor-

tion rose to . Among subprime borrowers, already heavy users of ARMs, it rose
from around  to . 
As people jumped into the housing market, prices rose, and in hot markets they
really took off (see figure .). In Florida, average home prices gained . annually
from  to  and then . annually from  to . In California, those
numbers were even higher: . and .. In California, a house bought for
, in  was worth , nine years later. However, soaring prices were
not necessarily the norm. In Washington State, prices continued to appreciate, but
more slowly: . annually from  to , . annually from  to . In

Ohio, the numbers were . and .. Nationwide, home prices rose . annu-
ally from  to —historically high, but well under the fastest-growing
markets.