Dr Chalmers on Wednesday announced a review of the Reserve Bank's monetary policy and make-up of its board for the first time in more than three decades.
"We want to build confidence in the Reserve Bank, and you build confidence in an institution by being prepared to refine it and reform it," he told reporters in Canberra.
"Interest rate rises hurt, we understand that.
"We want to make sure that when difficult decisions are taken by the independent Reserve Bank they're based on the best possible processes and the best possible arrangements."
RBA governor Philip Lowe told The Australian's Strategic Business Forum on Wednesday he expected interest rates to increase to 2.5 per cent or more.
"At some point, I imagine rates will get to at least that level," he said.
"How quickly we need to get there and indeed whether we need to get there will be determined by the inflation outlook."
The current economic turbulence provides good timing to rethink monetary policy "for the times we're in and for the challenges which are coming at us down the track", Dr Chalmers added.
"The global economy is entering another dark and difficult period with costs and consequences for us here at home," he said.
"Australians deserve a monetary policy framework that's fit for purpose into the future. That's what the review is all about."
It comes as some economists are predicting successive rate hikes and a cash rate of 2.6 per cent by the end of the year.
But Prime Minister Anthony Albanese says four rate hikes before the new year was "the more pessimistic end of the forecast".
"The Reserve Bank will make its decisions based upon their assessment of where the economy is at but they need to be careful they don't overreach as well," he said.
"Of course, the Reserve Bank declared a while ago, then conceded the error, that interest rates would would stay at the extraordinarily low levels ... up to 2024 and that hasn't been the case.
"They need to make sure that they get the assessment right but there are some circumstances that could not have been foreseen."
Reflecting on the RBA's decisions, Dr Lowe said it was possible the bank "over-insured" the economy.
"With the benefit of hindsight, it could be argued that we took out too much insurance. But that's the nature of insurance," he said.
"In the highly uncertain environment of the time, the right policy choice was to err on the side of too much insurance, rather than too little insurance.
"I recognise though that while this approach meant we avoided some damaging, long-term scarring, it has contributed to the inflationary pressures we are now experiencing."
Professor Carolyn Wilkins, Professor Renee Fry-McKibbin and Dr Gordon de Brouwer have been appointed to examine monetary policy arrangements, including whether the bank's current two to three per cent inflation-targeting framework is appropriate.
Shadow treasurer Angus Taylor said the opposition supported the two to three per cent medium-term inflation target in principle and would work in a bipartisan manner with the government.
Dr Lowe also welcomed the review, calling it a "health check".
"It's entirely appropriate for the government to take stock of Australia's monetary policy framework, something we welcome," he said.
"Other central banks have periodically reviewed their frameworks. We have done it internally, continuously, but I think it's useful in the public domain as well."
The five-year tenure of board member and business leader Mark Barnaba has also been extended by 12 months to August 2023, past the March 2023 reporting date of the review.
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