The insoluble problem faced by central banks

Central banks in OECD countries are faced with high inflation, the initial trigger of which was the negative supply shock of rising commodity prices. In principle, they ought to combat this inflation, but here the problems begin: Because monetary policy has no effect on commodity prices and given the weakness of the Phillips curve effect (the link between unemployment and inflation), a restrictive monetary policy would be ineffective at combating inflation. It would therefore take a very sharp increase in interest rates to have a significant effect on inflation; But OECD economies, which have already been hit by the COVID crisis and the effects of the war in Ukraine, would then be sent into recession. In addition, it would become difficult to finance the necessary public spending. So it is not possible to raise interest rates sharply; Central banks will the refore raise interest rates somewhat, simply to send the message that they are concerned about inflation. But this solution is not good: it will weaken investment (public, corporate and housing investment ) without having a significant effect on inflation. So central banks will both lose their anti-inflationary credibility and curb potential growth.