Food costs are soaring. Oil prices are at record highs. Economic growth is slowing. What's a central banker to do?

The charge of monetary authorities is to keep inflation in check, but they're increasingly being called on to micromanage economic growth. This is a herculean, if not impossible, task. They should return to their role as mediator of prices and let economic cycles sort themselves out.

Today's central bank action shows a divergence in priorities as each tries to address its country's most pressing need. According to Bloomberg:

• Iceland's central bank raised interest rates 0.50% to 15.5% to "damp inflation."
  
  
• Singapore's monetary authorities cut interest rates (by letting its currency strengthen) to "curb inflation."
  
  
• The European Central Bank is widely expected to hold interest rates steady at 4.0% to "control inflation."
  
  
• The Bank of England lowered rates 0.25% to 5.0% to "stave off recession."

Iceland and Singapore may not be seeing riots in the streets yet, but inflation is starting to get out of hand. Their central banks are taking responsible action to control prices by raising interest rates, which quashes inflation by reducing demand for goods and services. The economic cost is slower growth, but that's a small price to pay to maintain civil older.

The global economy is increasingly slipping toward stagflation, where slower growth and rising prices coexist. Using monetary policy, central bankers can try to combat one of these ills, but only at the expense of the other.

In the U.S., the Federal Reserve is squarely in the recession-fighting camp. By lowering interest rates, the Fed makes it cheaper for companies and consumers to borrow, spurring spending and buying. This helps boost economic output, but it also pushes up prices, as more money sloshing around the system means consumers are willing to pay more for goods.

As the U.S. economy rolls on towards recession while inflation persists, Fed Chairman Ben Bernanke's money-printing policies will begin to extract a serious toll on consumers in the form of higher prices. The Fed's fear of recession is staggering, as it rewrites the monetary policy rule book in favor of managing growth.

Our central bank faces a crucial cusp. Doing the right thing takes courage; just ask former Fed Chairman Paul Volker about the late 1970s and his defeat of inflation through higher interest rates. It remains to be seen if Chairman Bernanke possesses such fortitude; his record thus far suggests otherwise.