Powell Faces the Toughest Choice of His Career: Trump's Tariffs Simultaneously Trigger Inflation and Recession, But The Federal Reserve's Ammunition is Depleted? Federal Reserve Chairman Powell is facing the most difficult policy decision of his career. The sudden announcement of a large-scale tariff increase by the Trump administration is like an "economic nuclear bomb," simultaneously triggering a dual crisis of soaring inflation and economic recession. This perfect storm caused by trade policy has pushed the Federal Reserve into the most severe policy dilemma in 40 years - needing to deal with a possible economic recession while also curbing the imminent inflation.

The shadow of economic recession looms.
The business community and financial markets have sounded the alarm. Compass Diversified Holdings CEO Saboe revealed that its companies have begun to urgently freeze hiring and cut costs in preparation for the impending economic winter. Even more concerning is that this crisis may affect the consumption of previously strong high-income groups. Former Federal Reserve economist Trezi warned that the current situation is more severe than imagined: "This administration has brought the worst shock to the Federal Reserve, and they are now powerless."
The inflation monster returns.
The most direct impact of tariff policies is skyrocketing prices. From auto parts to clothing materials, the prices of imported goods are soaring across the board. More troubling is the possibility that this inflation may be persistent—just as the experience during the pandemic showed, one-time price increases often evolve into long-term inflation. Reinhart from Bank of New York Mellon pointed out: "After car prices increase, insurance costs will inevitably follow, and this chain reaction will make inflation harder to control."
The policy toolbox is constrained.
The Federal Reserve's conventional tools seem inadequate at this time. Lowering interest rates may exacerbate inflation, while maintaining rates could accelerate the economic downturn. Powell's statement last week, "there is no need to rush to cut rates," hints at this helplessness. Worse still, the abnormal surge in the 10-year U.S. Treasury yield shows that the market is losing confidence in U.S. assets. Former Fed Governor Meyer candidly stated, "The Federal Reserve finds it difficult to explain this dilemma to the public."
Summary: The Federal Reserve (FED)'s tightrope game
In the face of this perfect storm, The Federal Reserve (FED) is performing a thrilling balancing act. Just like a goalkeeper facing a penalty kick, they must make a split-second decision between saving inflation and rescuing the economy. Trezi pessimistically predicts, "Perhaps we can only rely on luck to make choices." What the market is even more worried about is that this crisis may evolve into a turning point for American economic hegemony—when a trade war escalates into a capital war, even the Federal Reserve (FED) may be powerless to turn the tide. In this summer filled with uncertainty, the policy bullets in Powell's hands are likely running low.