Lost in all this is the point that there is no good case for a 2 per cent inflation target, rather than 4. As far as I can tell, the strongest case is a meta-argument about expectations about the Fed. "Sure, a 4 per cent target would make sense, but if we changed now, the Fed would lose credibility". That rules out raising the target when inflation is already at or above 4 per cent. And no central bank is going to set a new target above the current rate (the idea of less than 2 per cent inflation was inconceivable when NZ set this target, precisely as the lowest rate that might be sustained.

So, we are stuck with 2 per cent and the prospect of periodic returns to the ZLB until something goes catastrophically wrong.