Goldman Sachs has faced sharp criticism for warning that higher tariffs will soon lead to stronger consumer inflation. But across Wall Street, many economists share the same outlook.
Investors reacted positively to the latest consumer price index data, but economists caution that the full inflationary impact of tariffs has not yet been felt. With pre-tariff inventories dwindling, effective tariff rates climbing, and companies less willing to absorb extra costs, the expectation is that consumers will face rising prices in the months ahead.
JPMorgan Chase chief U.S. economist Michael Feroli estimated tariffs could subtract 1% from GDP and add between 1% and 1.5% to inflation. He noted that the scale of this year’s tariff increases is “well larger than anything in the post-war U.S. experience.”
President Donald Trump publicly rebuked Goldman Sachs for the report, suggesting CEO David Solomon either fire the economist or resign. But removing every economist who shares that view would leave many empty offices in major financial institutions.
How Inflation Could Climb
Economists largely expect a gradual but persistent rise in prices as higher tariffs take hold, potentially reaching effective rates of around 18% compared with 3% earlier in the year.
UBS senior economist Brian Rose said that while shelter cost moderation and consumer resistance could soften the blow, the downward trend in core inflation appears to have been broken. Price increases of 0.3%–0.5% per month could push the Fed’s preferred core measure into the low- to mid-3% range.
Despite expected inflation pressure, most economists believe the Federal Reserve will begin cutting rates later in 2025. A weaker labor market and the belief that tariff-driven inflation will be temporary could still prompt looser monetary policy.
However, in the short term, higher prices may weigh on consumer spending, which makes up two-thirds of U.S. GDP. JPMorgan estimates GDP could fall by just under 1% as a result.
The August Blue Chip Economic Indicators report forecasts GDP growth of 0.85% in the second half of the year — slightly better than July’s 0.75% projection — on the expectation that tariff effects will fade in 2026.
Risks to Watch
The Aug. 29 expiration of de minimis tariff exceptions — which had allowed goods under $800 in value to enter the U.S. duty-free — could impact retail goods directly.
Pantheon Macroeconomics predicts a 1-point increase in core inflation by year-end, reaching 3.5%, with only about a quarter of the tariff effect passed to consumers so far. BNP Paribas expects price increases to spread beyond goods into services, adding to concerns about inflation “stickiness.”
The Cleveland Fed’s sticky-price CPI, which tracks items like rent, dining out, and insurance, has risen to 3.8% on a three-month annualized basis — the highest since May 2024.
What The Author Thinks
The reality is that tariffs are a blunt tool. While they can protect domestic industries in the short term, the costs almost always find their way back to consumers. If inflation creeps up just as household budgets are already stretched, the political wins from “tough trade” policies could be overshadowed by everyday frustration at the grocery store and checkout counter.
Featured image credit: PickPik
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