And we have no contemporary experience to assess how wage outcomes will evolve at a national unemployment rate below 4 per cent. A broader uncertainty is the extent to which other central banks will have to increase interest rates to return inflation to lower rates.
Central banks and financial markets expect that a decline in inflation to target can be achieved without real policy interest rates returning to positive territory. It is entirely possible, though, that countries with higher inflation rates will need a bigger adjustment in interest rates than currently anticipated. If so, this could result in an abrupt adjustment in financial conditions.