Fundamental sensor feedback limitations for improving rotor angle stability using local frequency or phase angle measurement are derived. Using a two-machine power system model, it is shown that improved damping of inter-area oscillations must come at the cost of reduced transient stability margins, regardless of the control design method. The control limitations stem from that the excitation of an inter-area mode by external disturbances cannot be estimated with certainty using local frequency information. The results are validated on a modified Kundur four-machine two-area test system where the active power is modulated on an embedded high-voltage dc link. Damping control using local phase angle measurements, unavoidably leads to an increased rotor angle deviation following certain load disturbances. For a highly stressed system, it is shown that this may lead to transient instability. The limitations derived in the paper may motivate the need for wide-area measurements in power oscillation damping control.