New York (CNN Business) The tariff-induced market meltdown is increasing the probability that the Federal Reserve could cut interest rates later this year.

But what if the central bank goes in a different direction? There's an argument that the Fed's hands are tied and that it might need to actually hike rates if consumer prices creep higher.

The Fed may not just be facing the risk of recession. It needs to watch out for another threat: a troublesome economic trend known as stagflation, which is when sluggish growth and inflation happen simultaneously. That's what happened in the 1970s, when oil prices surged at the same time the broader economy was slumping.

High Yield HYLD "It's entirely possible the Fed could have to raise rates," said Michael DePalma, managing director of fixed income with MacKay Shields, a firm that runs thebond ETF.

"What's tricky is that inflation is a process. It doesn't turn on a dime. It has to work its way through," DePalma added. "If you do get inflation it can seriously hamper the Fed's ability to cut rates if the economy slows."

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