Damned if you do, damned if you don't

This comment by Fed policymaker Mester yesterday is something that stands out to me:

"I do expect some improvement in inflation readings later in the year as demand moderates and capacity constraints in both product and labor markets begin to ease. My expectation is that inflation will moderate but remain above 2% this year and next, but this forecast is conditional on the FOMC taking appropriate action.”

I've said it once and I'll say it again. Central banks just don't have the right tools to deal with the latest surge in inflation pressures.

Mester's remarks above are trying to provide some reassurance that the Fed is doing the right thing but is it really?

Policymakers are not left with much of a choice as inflation continues to run rampant. Labour market conditions are tightening as the world heals from the pandemic and there might be concerns over wage-price spirals (although, I don't see it). However, that shouldn't be confused with tighter policy being able to counteract the factors that have brought about inflation in the past year.

Ultimately, the biggest issue globally right now is supply chain disruptions. Monetary policy in all its glory has no ability to fix that. Hence, it doesn't matter if the Fed brings rates to 1% or 2%. The material difference isn't in interest rates but is in how supply chain issues can be fixed over the months/years ahead.

The hope for central banks is that the timing of their tightening will fit with the easing of supply chain disruptions around the world. That would give the illusion that their efforts are "working".

However, it is one thing to see inflation pressures cooling and another to see it return back to 2%.

I see the former being the case as monetary policy tightens for some major central banks but the latter scenario may be something that requires plenty of hopeful and wishful thinking for the most part.

Even though policymakers know that, the immense pressure piled on by surging inflation figures is something they can't ignore. And so, here we are. Damned if you do, damned if you don't.