Key insights
- A Fed study indicates that tariffs imposed in 2025 significantly contributed to excess inflation, raising core goods prices and pushing the PCE index above the Fed's 2% target. This suggests that without tariffs, inflation might have already reached the Fed's goal. The findings highlight the impact of trade policy on inflation and the challenges it poses for monetary policy.
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Imagine, if you will, a world where instead of getting relentlessly more expensive, the prices on the products you bought fell over time, slowly but surely. That may sound far-fetched these days, but that's generally how it went before the pandemic, and how things would have gone in 2025 had President Donald Trump not imposed sweeping tariffs on nearly every U.S. trading partner.
At least, that's according to an analysis released last week by economists at the Federal Reserve, who found that the import taxes pushed up "core goods" prices—that is, for physical products as opposed to services, excluding the volatile prices for food and energy—up 3.1% in the 12 months through February 2026. Before the pandemic, core goods prices tended to fall by about 1% per year on average.
The research underscores the significant impact of tariffs on the economy and international trade, showing how they have raised consumer prices.
The paper, which analyzed prices as measured by the Personal Consumption Expenditures price index, found that tariffs pushed up the core PCE index 0.8%, lifting it to a 3% annual increase as of February, well above the Fed's goal of a 2% annual increase.
Given that core inflation was below 2.8% for much of 2025, the study suggests it would have hit the Fed's goal by now if not for the tariffs. Instead, inflation has run above target since 2021, proving a persistent thorn in the side of household budgets as well as the Fed policymakers struggling to keep inflation in check with monetary policy.
The Fed study found tariffs made their way into prices "dollar-for-dollar" after seven months, as importers who paid the duties passed the cost on down the supply chain.
The report added to a growing pile of studies that found the tariffs of 2025 have dealt a setback to the economy. Previous research by the Fed and other organizations has found that tariffs have increased household expenses because merchants have passed most of their costs on to consumers, with U.S.-based companies absorbing some of the costs.
Trump and supporters of the import taxes say they are meant to encourage U.S.-based manufacturing and bring back factory jobs, although manufacturing employment has declined nearly every month since they were introduced.
While the country-level tariffs levied more than a year ago have broadly been blocked by the Supreme Court, the administration says it's just a temporary reprieve from the import taxes. On Tuesday, Treasury Secretary Scott Bessent said that similar tariffs will be put into place under different legal authority by the beginning of July.
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