Now that President Donald Trump has set out his landmark tariff plans, the Federal Reserve finds itself in a potential policy box to choose between fighting inflation, boosting growth — or simply avoiding the fray and letting events take their course without intervention.

Should the president hold fast to his tougher-than-expected trade policy, there’s a material risk of at least near-term costs, namely the potential for higher prices and a slowdown in growth that could turn into a recession.

For the Fed, that presents a potential no-win situation.

The central bank is tasked with using its policy levers to ensure full employment and low prices, the so-called dual mandate of which policymakers speak. If tariffs present challenges to both, choosing whether to ease to support growth or tighten to fight inflation won’t be easy, as each courts its own peril.

“The problem for the Fed is that they’re going to have to be very reactive,” said Jonathan Pingle, chief U.S. economist at UBS. “They’re going to be watching prices rise, which might make them hesitant to respond to any growth weakness that materializes. I think it’s certainly going to make it very hard for them to be preemptive.”

Under normal conditions, the Fed likes to get ahead of things.

If it sees leading gauges of unemployment perk up, the Fed will cut interest rates to ease financial conditions and give companies more incentive to hire. If it sniffs out a coming rise in inflation, it can raise rates to dampen demand and bring down prices.

So what happens when both things occur at the same time?

In the current case, the choice will be tough, particularly coming on the heels of how the Jerome Powell-led central bank was flat-footed when prices started rising in 2021 and he and his colleagues dismissed the move as “transitory.” The word has been resurrected to describe the Fed’s general view on tariff-induced price increases.

“They do risk getting caught offsides with the potential magnitude of this kind of price increase, not unlike what happened in 2022 where, they might might feel the need to respond,” Pingle said. “In order for them to respond to weakening growth, they’re really going to have to wait until the growth does weaken and makes the case for them to move.”

To be sure, the Trump administration sees the tariffs as pro-growth and anti-inflation, though officials have acknowledged the potential for some bumpiness ahead.

“It’s time to change the rules and make the rules be stacked fairly with the United States of America,” Commerce Secretary Howard Lutnick told CNBC in a Thursday interview. ” We need to stop supporting the rest of the world and start supporting American workers.”

However, that could take some time as even Lutnick acknowledged that the administration is seeking a “re-ordering” of the global economic landscape.

Like many other Wall Street economists, Pingle spent the time since Trump announced the new tariffs Wednesday adapting forecasts for the potential impact.

As is often the reaction during a market wipeout like Thursday’s, the market raised the implied odds that the Fed will cut aggressively this year, going so far as to put the equivalent of four quarter-percentage-point reductions in play, according to the CME Group’s FedWatch tracker of futures pricing.

Shah, however, noted that “the path to easing has become narrower and more uncertain.”

Fed officials certainly haven’t provided any fodder for the notion of rate cuts anytime soon.

In a speech Thursday, Vice Chair Philip Jefferson stuck to the Fed’s recent script, insisting “there is no need to be in a hurry to make further policy rate adjustments. The current policy stance is well positioned to deal with the risks and uncertainties that we face in pursuing both sides of our dual mandate.”

Taking the cautious tone a step further, Governor Adriana Kugler said Wednesday afternoon — at the same time Trump was delivering his tariff presentation in the Rose Garden — that she expects the Fed to stay put until things clear up.

“I will support maintaining the current policy rate for as long as these upside risks to inflation continue, while economic activity and employment remain stable,” Kugler said, adding she “strongly supported” the decision in March to keep the Fed’s benchmark rate unchanged.

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A surge in federal government job cuts contributed to a near record-setting pace for announced layoffs in March, exceeded only by when the country shut down in 2020 for the Covid pandemic, according to a report Thursday from job placement firm Challenger, Gray & Christmas.

Furloughs in the federal government totaled 216,215 for the month, part of a total 275,240 reductions overall in the labor force. Some 280,253 layoffs across 27 agencies in the past two months have been linked to the Elon Musk-led Department of Government Efficiency and its efforts to pare down the federal workforce.

The monthly total was surpassed only by April and May of 2020 in the early days of the pandemic when employers announced combined reductions of more than 1 million, according to Challenger records going back to 1989.

“Job cut announcements were dominated last month by Department of Government Efficiency [DOGE] plans to eliminate positions in the federal government,” said Andrew Challenger, senior vice president and workplace expert at the firm. “It would have otherwise been a fairly quiet month for layoffs.”

However, DOGE has continued to cut aggressively across the government.

Various reports have indicated that the Veterans Affairs department could lose 80,000 jobs, the IRS is in line for some 18,000 reductions and Treasury is expected to drop a “substantial” level of workers as well, according to a court filing.

The year to date tally for federal government announced layoffs represents a 672% increase from the same period in 2024, according to Challenger.

To be sure, the outsized layoff plans haven’t made their way into other jobs data.

Weekly unemployment claims have held in a fairly tight range since President Donald Trump took office. Payroll growth has slowed a bit from its pace in 2024 but is still positive, while job openings have receded but only to around their pre-pandemic levels.

However, the Washington, D.C. area has been hit particularly hard by the announced layoffs, which have totaled 278,711 year to date for the city, according to the report.

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U.S. President Donald Trump will “buckle under pressure” and alter his tariff policies if Europe bands together, acting German economy minister Robert Habeck said Thursday.

“That is what I see, that Donald Trump will buckle under pressure, that he corrects his announcements under pressure, but the logical consequence is that he then also needs to feel the pressure,” he said during a press conference, according to a CNBC translation.

“And this pressure now needs to be unfolded, from Germany, from Europe in the alliance with other countries, and then we will see who is the stronger one in this arm wrestle,” Habeck said.

Elsewhere, outgoing German Chancellor Olaf Scholz said he believed the latest tariff decisions by Trump were “fundamentally wrong,” according to a CNBC translation.

The measures are an attack on the global trade order and will result in suffering for the global economy, Scholz said.

On Wednesday, Trump imposed 20% levies on the European Union, including on the bloc’s foremost economy Germany, as he signed a sweeping and aggressive “reciprocal tariff” policy.

Germany is widely regarded as one of the countries likely to be most impacted by Trump’s tariffs, given its heavy economic reliance on trade.

This is a developing story, please check back for updates.