New York Fed economists estimate that President Trump's 2025 tariffs added to goods price inflation, contradicting his claim that tariffs do not cause it. Tariff revenue has climbed sharply, but the Fed could respond with more aggressive rate hikes.
President Donald Trump said at a Montana midterm campaign rally on Oct. 14 that tariffs cause wealth, not inflation. Trump said, per The Motley Fool: "We don't have inflation, and tariffs don't cause inflation." Federal Reserve economists reach a different conclusion, according to The Motley Fool.
Tariff revenue has more than tripled since 2024
The Bipartisan Policy Center tracks Treasury data, and it shows gross tariff and excise revenue of $264 billion in calendar year 2026 as of Nov. 9. That compares with $227 billion at the same point in 2025 and $82 billion in 2024.
The Supreme Court struck down the "Liberation Day tariffs" roughly 10 months after they took effect. The administration then imposed duties of 10% to 12.5% on more than 80 countries in late July 2026 under Section 301 of the Trade Act of 1974.
New York Fed finds tariffs lifted consumer prices
Three New York Fed economists examined the effect of the 2025 tariffs on consumer prices in a Liberty Street Economics report. They found the duties contributed an estimated 2.9 percentage points to goods price inflation by February 2026, and that prices would have declined without them.
The report identified three channels. The tariff itself raised consumer prices, duties on inputs such as steel raised domestic manufacturing costs, and domestic manufacturers occasionally raised prices to capture some of the difference when imports became costlier.
An earlier Liberty Street report looked at the 2018-2019 China tariffs. It found that public companies whose stocks reacted poorly on tariff-announcement days saw average drop-offs in employment, labor productivity, sales and profits from 2019 to 2021.
Fed may face pressure to hike rates further
The Motley Fool argues that tariffs, together with inflation driven by the Iran war, have become entrenched in the U.S. economy. Fed Chair Kevin Warsh and his colleagues may have little choice but to get far more aggressive with the current rate hike cycle.
Several increases could slow the partially debt-financed AI data center build-out and halt the AI-driven bull market, the article says.
Source: The Motley Fool
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