The 2022-2024 inflation episode was the first serious stress test of the inflation-targeting framework that has dominated central banking since New Zealand adopted it in 1990. The framework worked, in the sense that inflation eventually came down. But the cost — three years of policy tightening, recurring bouts of financial stress, persistent shelter inflation, and a credibility hit at major central banks — has reopened questions the orthodoxy had treated as settled.

The Framework's Logic

Inflation targeting rests on three propositions. Central banks set a numerical inflation target (typically 2%). They use a single instrument (the policy rate) to hit it. They commit not to deviate from the target for short-run output reasons, accepting that the resulting credibility keeps long-run inflation expectations anchored. The intellectual foundation is in the work of John Taylor, Lars Svensson, Michael Woodford, and Marvin Goodfriend across the 1990s and 2000s.

The framework worked very well from roughly 1995 to 2020. Inflation was stable and predictable in the developed world. Even the 2008 financial crisis, which broke many other aspects of macro policy, did not unanchor inflation expectations.

What 2021-2024 Revealed

The pandemic-era inflation surge had components that the framework was not built for. Supply-chain shocks raised goods prices in ways that demand-management could not address. Energy-market disruptions from the Russian invasion of Ukraine produced cost-push inflation that the Fed's demand-side tools could not target. Shelter inflation became sticky because the rate-hike instrument worked through housing-market channels that lagged the broader cycle.

The framework's defenders argue that it ultimately delivered: inflation peaked at 9.1% in mid-2022 and was back to 2.4% by late 2024 without a major recession. The critics argue that the framework barely survived the test, that it required emergency interventions outside its normal operations (the SVB-era Bank Term Funding Program, balance-sheet expansion despite tightening rhetoric, expanded swap lines), and that the next shock with comparable supply-side features would expose the same weaknesses without supply normalization to bail it out.

The Blanchard Critique

Olivier Blanchard's PIIE work since 2022 argues for a higher inflation anchor (3% rather than 2%) to expand central banks' policy space at the zero lower bound. The argument is technical and empirically grounded: the natural rate of interest has fallen since the 1990s, so the zero lower bound binds more often, and a higher inflation target gives more nominal interest-rate room. The counterargument is that any move away from the long-credentialed 2% number unanchors expectations and sacrifices the central asset the framework has built.

This is not a fringe debate. The Fed's 2025 framework review and the ECB's parallel work both have to address whether the target survives the next decade. The decision will be partly technical and partly political — the technical case for a higher target is reasonable, but the political cost of changing the anchor is substantial.

The Minsky Frame

Hyman Minsky's "stability breeds instability" thesis is the most-cited intellectual heritage of the post-2008 financial-stability concern. Minsky argued that long stable expansions encourage rising leverage, which is invisible during the expansion and catastrophic when the cycle turns. The 2010s low-inflation low-rate environment looked exactly like the conditions Minsky described — Treasury markets stretching duration, private credit growing rapidly outside bank balance sheets, commercial real estate building up debt against asset values that depended on continued low rates. The 2022-2023 stress events — Credit Suisse, SVB, First Republic, the UK gilt-market dislocation — were the cyclical consequences Minsky's frame predicts.

The inflation-targeting framework does not have good tools for financial stability concerns in its core. The "lean against the wind" debate — should monetary policy respond to financial-stability concerns even when inflation is on target? — has been argued for two decades without resolution. The 2022-2024 episode reopened it without settling it.

What Will Replace It (Or Won't)

The alternatives to inflation targeting that have been proposed — nominal GDP targeting, price-level targeting, "flexible average inflation targeting" — are all variations on the same demand-management framework. None of them address the supply-side and financial-stability weaknesses that the 2022-2024 episode exposed. The deeper question is whether monetary policy alone can be expected to manage modern economies' macroeconomic outcomes, or whether fiscal policy, regulation, and supply-side policy have to take a larger share of the load.

The Honest Reading

Inflation targeting passed the 2022-2024 test but in a way that exposed the framework's narrowness. The next supply shock that coincides with financial-stability stress will pose a harder test, and the conventional tools — set a numerical target, raise the policy rate, hold the line — will be inadequate. Minsky's revenge is not that inflation came back; it is that the central-bank framework that took forty years to build is starting to look like a framework for a world with predictable supply, contained financialization, and well-behaved inflation expectations — a world that no longer reliably exists. The framework's defenders are right that no fully worked-out alternative exists yet. The critics are right that the current framework is visibly creaking.

The Institutional Lag

Central-bank frameworks update slowly. The shift from money-supply targeting to inflation targeting took about fifteen years. The shift from strict inflation targeting to flexible-average-inflation targeting took about five years. The next shift — toward whatever framework comes after FAIT — will probably take a decade as well. In the interim, the existing framework will be used to manage shocks it was not designed for, with results that depend heavily on the improvisational capacity of the institutions and the discretion of their leaders. The framework on paper matters less than the institutional culture that interprets it under pressure.

The Successor Frameworks

Several candidate frameworks have been proposed to replace strict inflation targeting. Nominal GDP targeting (Scott Sumner, others) would target the nominal value of economic activity rather than the inflation component. Price-level targeting would commit the bank to making up undershoots and overshoots over time. The current FAIT framework is a partial implementation of price-level targeting. None of these has emerged as a clear consensus successor. The 2025 framework review will probably produce another incremental modification rather than a wholesale replacement, which means the underlying tensions the 2022-2024 episode revealed will continue to operate within a framework that has not been redesigned to handle them.