Fortune to determine whether Stevens emerges as a hero

My guess is that the second scenario is most likely - with the economy quickly regaining its robust growth.

The possibility of a quick return to growth scenario is why the Reserve Bank will not cut rates too quickly. Having allowed inflation to get away from it by allowing domestic demand to overheat, premature easing would compound the idiot scenario to a point that central bank "independence" would become seriously compromised.

We have been criticised as "seriously misguided" for proposing that inflation targeting be suspended or modified.

However, the Reserve has failed to mention its "target range" in the four sets of minutes released since our Anzac Day article on the subject.

More directly, the Reserve has declined to raise interest rates since then, despite surprisingly high inflation and consumer inflationary expectations reaching 5.9 per cent.

It is also noteworthy that the Bank for International Settlements (BIS), the central bankers' central bank, has recently suggested a more sophisticated approach to managing monetary policy.

"Monetary policy might be tightened even with projected inflation under control, given a sufficiently worriesome combination of rapid credit growth, rising asset prices and distorted spending or production patterns."

The graph is designed to put simple goods and service inflation into perspective. It shows US, Australian and Japanese share prices since 1984. Also shown is Australia's goods and services (CPI) inflation over the same period. By comparison to movements in share prices, goods and services (CPI) inflation seems trivial.

If we apply the BIS logic to this graph, the big drops in share prices are part of a case for cutting interest rates.

The Bernanke Fed has already cut rates to a dangerously low 2 per cent, only 100 basis points above Greenspan's 1 per cent. This is now widely agreed to have encouraged the subsequent share price boom and global inflation of goods and service inflation.

Comparison of the three share price indices is instructive in other ways.