EC Markets official website: Trump's tariffs have simultaneously detonated inflation and recession, but the Federal Reserve has run out of bullets?

Federal Reserve Chairperson Jerome Powell is facing the toughest policy decision of his career. The Trump administration's sudden announcement of massive tariffs is like an "economic nuclear bomb".EC Markets official websiteThe twin crises of soaring inflation and recession have unleashed a perfect storm of trade policy that has thrust the Federal Reserve into its worst policy dilemma in 40 years - dealing with a possible recession while containing impending inflation.

Economic recession looms

Corporate and financial marekts are sounding the alarm. Mr. Saab, chief executive of Compass Diversified Holdings, has revealed that his companies have begun an emergency hiring freeze and cost-cutting to prepare for the coming economic winter. More worryingly, the crisis could spill over into consumption by high-income groups that had previously performed strongly. Mr. Trezzi, a former Fed economist, warns that the current situation is more severe than imagined: "This administration has dealt the worst blow to the Fed, and there is nothing they can do about it now."

The inflation monster is back

The most immediate impact of tariffs is soaring prices. Prices of imported goods, from car parts to raw materials for clothing, have soared. More troubling, this inflation can be persistent - as experience during the epidemic shows, one-off price increases often turn into long-term inflation. "When car prices go up, insurance costs follow, and this chain reaction makes inflation harder to control," notes BNY Mellon Reinhart.

The policy toolbox is stretched thin

The Fed's conventional weapons are at a loss at this point. Cutting interest rates could fuel inflation, and maintaining them would accelerate the economic downturn. Powell's statement last week that "there is no need to rush to cut rates" hinted at this helplessness. Worse, the unusual surge in 10-year Treasury yields shows that markets are losing confidence in US assets. "It's hard for the Fed to explain this dilemma to the public," admits Meyer, a former Fed governor.

Summary: The Fed's tightrope-walking game

In the face of this perfect storm, the Federal Reserve is performing a thrilling balancing act. Like a goalkeeper facing a penalty, he must make a split-second choice between fighting inflation and saving the economy. "Maybe it's just luck," Mr. Trezzi predicts pessimistically. More worrying is that the crisis could turn into a turning point for US economic hegemony - when the trade war escalates into a capital war, even the Federal Reserve will be out of control. In this summer of uncertainty, Powell may have few policy bullets left in his hands.