At a Glance

  • Economists at the Federal Reserve Bank of Atlanta, citing business surveys, noted that while the highest tariffs since the 1930s have not triggered a sudden spike in prices as widely expected, they are likely to push inflation significantly higher and keep it elevated into next year.
  • The economists said in a research note that the absence of a sudden jump in prices has sparked debate over whether concerns about import taxes driving up prices have been exaggerated. However, cost and price expectations measured by recent business surveys "suggest that the tariff impact, while delayed, remains substantial."
  • "Since this time last year, firms' expectations for unit cost and price growth have risen notably, with prices expected to remain elevated through 2026," the economists said. "Even non-importing firms not directly affected by tariff rate hikes expect faster price growth, indicating some diffusion of price pressures." they added.

In-Depth Analysis

In recent months, Federal Reserve officials have debated whether import tariffs will cause a temporary or persistent rise in prices.

In September, Fed Chair Jerome Powell and most central bank officials leaned toward the view that tariff-driven inflation might be relatively short-lived. But they agreed on the need to identify any signs of persistent price increases, including a rise in inflation expectations.

"Although part of the pass-through of tariffs will permanently raise the price level, tariffs will only temporarily affect the inflation rate," Fed Governor Christopher Waller said in a speech on Thursday.

Waller pointed to signs of weakness in the labor market and argued that the central bank should cut the federal funds rate by 25 basis points at its two-day policy meeting next week.

Nevertheless, he said the central bank should be cautious about lowering borrowing costs too quickly. "What I want to avoid is reigniting inflationary pressures by acting too quickly and wasting the significant progress we have made in containing inflation."

The Yale Budget Lab estimated last month that consumers face an effective tariff rate of 17.9%, which would push prices up 1.7% this year and reduce average household income by $2,400. In the long run, clothing and leather prices would be 11% and 12% higher, respectively, than without the import taxes.

The Trump administration has said tariffs have not pushed up prices and claims any increases will be temporary.

Fed Governor Stephen Miran said last month that many economistsoverestimated the risk that tariffs would intensify price pressures。

Miran stepped back from his role as Trump's top economic adviser in September to finish the remaining four months of his term as a central bank governor, which ends in January.

"The relatively small changes in prices of some goods have triggered a level of concern that I think is unwarranted," he said at the Economic Club of New York.

Miran's views are not widely shared among economists.

"We continue to expect tariffs to be a source of goods price inflation over the coming quarters," economists at BofA Securities said in a research note on Monday.

They noted that the consumer price index likely rose 3% last month, up 0.1 percentage point from August and well above the Fed's 2% target.

Atlanta Fed researchers said that as a potential sign of rising inflation, surveys show firms still plan to raise prices even though input price increases have slowed.

"Although the trajectory of unit cost growth has softened, firms overall expect price growth to remain elevated over the next year," they said.