Furthermore, the argument that we could accept a higher trend inflation rate ignores how much the structure of the economy has adapted – in good ways – to “two point something” inflation. The structure of nominal interest rates, to name just one thing, has been predicated on that being the medium term anchor.
If that anchor were allowed to drag, higher average interest rates in the future would be the result. This is a result amply demonstrated in history: the surest way to higher average interest rates is to accept higher inflation. To put it simply, if the community wants sustainably low interest rates, we should choose a low inflation target, not a high one.