So much for Federal Reserve Chairman Jerome Powell’s repeated assurances last year that inflation would prove to be but a transitory phenomenon. So much too for our hopes that it will be smooth sailing ahead for the economy, the stock market and our 401(k)s as we finally recuperate from a two-year pandemic. Powell now has some tough decisions to make.

Thursday’s dreadful consumer price index numbers show that inflation has been broad-based and is showing no sign of retreating. This hardly bodes well for the year’s economic outlook and for stock-market prices, which have taken a nose-dive since the start of the year.

Indeed, despite Team Biden downplaying the depressing data, the news is especially worrisome because it comes at a time of heightened financial market volatility — and because the Russian invasion’s serious impact on international commodity prices has yet to be felt in the consumer price index.

Consumer price inflation is now running a hair’s breadth short of 8%, according to the Labor Department. This is the highest rate of inflation since 1982, when Ronald Reagan was president. It is also some four times the Fed’s 2% definition of a desirable inflation rate.

But bad as Thursday’s inflation numbers are, we have to brace ourselves for worse to come in the months immediately ahead.

President Joe Biden claimed Thursday that “today’s inflation report is a reminder” that “families are starting to feel the impacts of Putin’s price hike.” But inflation was already seeing record rises before Russian President Vladimir Putin invaded Ukraine — 7.5% last month. Biden pumped unprecedented trillions into a peacetime economy, and the Federal Reserve kept printing money to finance the deficit. Such a huge hike in the money supply was sure to induce inflation.

Now Russia’s invasion will take its toll, too. It’s not just that it has caused international oil prices to jump 60% since the start of the year to around $120 a barrel. It has also produced a sharp increase in international food prices as well as in the cost of key industrial metals like aluminum, nickel, platinum and palladium. The effects will be widespread — and hit the weakest the hardest. Particularly troubling for low-wage earners is the fact that wheat prices have climbed by more than 60% since the year’s start.

Of particular note is how quickly the spike in international oil prices is being felt at the gasoline pump. Over the past two weeks, gasoline prices have increased by some 20% to their present national average of around $4.35 a gallon. That jump in gas prices alone could add three-quarters of a percentage point to next month’s consumer price inflation reading.

When the Fed meets next week to decide what to do about interest rates, inflation will not be the only problem on its mind. It will also need to worry about signs that the equity and credit market bubbles, which the Fed created through its aggressive bond-buying program, now appear to be in the process of deflating.

Since the start of the year, the S&P 500 and the NASDAQ have lost 12% and 20% in value, respectively. Meanwhile, market volatility and interest rates on risky loans are rising in a way that could cause financial market stress.

All this leaves the Fed on the horns of a dilemma. If it raises interest rates in an aggressive manner, it might succeed in getting the inflation genie back into the bottle — but it would be doing so at the risk of a disorderly bursting of the equity and credit market bubbles.

If, on the other hand, the Fed acts timidly on interest rates, it might help stabilize the financial markets — but it would be doing so at the risk of losing control over inflation. Losing control over inflation in turn would set us up for a hard economic landing when accelerating inflation eventually forces the Fed to slam on the monetary policy brakes.

Judging by the Powell Fed’s past track record of being overly sanguine about inflation risks, my expectation is that the Fed will choose a path of interest-rate timidity that will leave interest rates very negative in inflation-adjusted terms. If that proves to be the case, we should brace ourselves: There will be some rough sailing in the stock market, which could put a dent in our 401(k)s. Worse, we could be in for a prolonged period of inflation, the likes of which we haven’t seen since the 1970s.

Desmond Lachman is a senior fellow at the American Enterprise Institute. He was formerly a deputy director in the International Monetary Fund’s Policy Development and Review Department and the chief emerging market economic strategist at Salomon Smith Barney.