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The Fed could find itself in a policy Catch-22 if tariffs spike inflation and slow growth

A complicated scenario is emerging surrounding the tariff drama that could put the Federal Reserve in an uncomfortable Catch-22, unsure whether to use its policy levers to tame inflation or boost growth.

With many bridges to cross yet in President Donald Trump's efforts to use the levies as a tool both of foreign and economic policy, the central bank will have a delicate balance to strike.

Many economists expect the tariffs both to raise prices and shave the pace of gross domestic product, with the main question being a matter of degree on the extent of any need for Fed policy adjustments.

"Maybe you get that price shock and maybe it's offset by the dollar going up vs. the currencies of the countries subject to tariffs. But just really the long-term effects tend to be negative for growth," said Kathy Jones, chief fixed income strategist at Charles Schwab. "You put that combination together and it puts the Fed in a real bind."

There are a lot of moving parts happening in the dispute Trump is having with China, Canada and Mexico, the three leading U.S. trade partners. As things stand now, threatened duties against Canada and Mexico have been postponed as the president negotiates with leaders of those governments. But the situation with China has quickly escalated into a tit-for-tat conflict that has markets on edge.

That tariffs cause higher prices is practically an article of faith for economists, though the historical record provides less certainty. The Smoot-Hawley tariffs in 1930, for instance, actually proved to be deflationary as they helped worsen the Great Depression.

When Trump launched tariffs in his first term, inflation was low and the Fed was raising rates as it sought a "neutral" level. A manufacturing recession

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