Key Findings

  • A survey released by the Federal Reserve on Tuesday showed that nearly three-quarters (73%) of small businesses view inflation as their biggest financial challenge, with 42% citing tariffs as a major issue.
  • 48% of small businesses import goods, and 84% of those reported higher import prices over the past year. The survey was conducted jointly by the Fed's 12 regional banks.
  • New York Fed President John Williams said Tuesday: "Tariffs have significantly raised prices of imported goods in the U.S., and the full impact may not yet be fully visible." Citing New York Fed research, he noted that U.S. businesses and consumers bear nearly 90% of the burden of import tariffs. Williams said in his remarks that tariffs have "hindered" efforts to bring inflation back to the central bank's 2% target.

Deeper Analysis

Economists point out that, similar to tariffs, a prolonged disruption in oil and other commodity shipments due to the expanding conflict in the Persian Gulf region could also push up inflation.

Minneapolis Fed President Neel Kashkari said Tuesday regarding the conflict: "It is still too early to judge its impact on inflation and how long it will last."

Kashkari said at an event hosted by Bloomberg that the strikes on Iran have raised questions about the prudence of cutting the Fed's key interest rate this year. He revealed that before the hostilities broke out, he had expected one rate cut in 2026.

"Now, given the geopolitical events, we need to gather more data," Kashkari said.

Since last Saturday, strikes by U.S. and Israeli warplanes on Iran have pushed up prices of crude oil and other energy commodities. On Tuesday, Brent crude futures rose 5%, following an increase of about 8% on Monday.

A prolonged conflict in the Middle East could keep energy prices elevated, exacerbate inflation, and weigh on global economic growth.

Williams said he expects price pressures to ease this year, which would create conditions for rate cuts.

"I expect inflation to begin to come down later this year, when the peak impact of tariffs on the inflation rate becomes a thing of the past," he said.

"If inflation evolves as I expect, then further cuts to the federal funds rate will ultimately be appropriate to prevent monetary policy from inadvertently becoming more restrictive," Williams added.

On tariffs, the Fed survey found that three-quarters (76%) of small businesses have passed the cost of import taxes on to customers, while 60% absorbed all or part of the costs. Only 13% of businesses reported switching from foreign suppliers to domestic ones.

The Fed said 69% of retailers and 62% of manufacturers reported facing challenges from tariffs.

The survey collected 6,525 responses from small businesses with 1 to 499 full-time or part-time employees, conducted from early September to mid-November 2025.