Goldman Sachs is facing heavy political fire from Washington for warning that consumers will feel a sharper bite from tariffs in the months ahead — but the investment bank has stood by its analysis.
Many other economists agree that the biggest inflationary impact from President Donald Trump’s tariff policies has yet to hit.
The situation became intense on Tuesday, following the consumer price index (CPI) report, which looked benign on the surface, with inflation rising less than some feared. But economists say the calm is temporary. With pre-tariff inventories running down, effective tariff rates now near 18%, compared with around 3% at the start of the year, and companies increasingly unwilling to absorb costs, the burden is expected to fall more directly on consumers through the rest of 2025.
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“Tariffs could subtract 1% from GDP and add 1-1.5% to inflation, some of which has already occurred,” said Michael Feroli, chief U.S. economist at JPMorgan Chase. “There is considerable uncertainty around the degree of pass-through to consumer prices, given that this year’s tariff increases are well larger than anything in the post-war U.S. experience.”
Trump lashed out at Goldman Sachs on Tuesday after its economists projected heavier inflation ahead. In a Truth Social post, he suggested CEO David Solomon either fire the economist behind the research or resign himself. But Goldman’s chief U.S. economist, David Mericle, defended the forecast in a CNBC interview Wednesday, saying the firm is “undeterred” and stands by its analysis.
“If the most recent tariffs follow the same pattern as the earliest ones this year, by the fall we estimate consumers will bear about two-thirds of the cost,” Mericle said.
While no one is predicting runaway inflation, the consensus sees monthly CPI gains in the 0.3% to 0.5% range, enough to push the Fed’s preferred core inflation measure into the low- to mid-3% range. UBS senior economist Brian Rose said the downward trend in core inflation “has been broken” as tariffs filter into retail prices, though he expects slower shelter inflation and resistance from cash-strapped consumers to blunt the full effect.
“It appears that the downward trend in core inflation has been broken as tariffs start to feed through into retail prices,” Rose wrote. “We expect inflation to continue on a gradual upward trend as businesses pass along their higher costs, but slowing shelter inflation and push-back from increasingly stretched consumers should help offset some of the tariff impact.”
Pantheon Macroeconomics forecasts core inflation reaching 3.5% by year-end, noting that “only about a quarter” of the uplift has filtered through so far.
“Only about a quarter of that uplift has filtered through to consumers so far, so we see a strong chance core goods prices will rise at a faster pace over coming months,” the firm said.
BNP Paribas warns that price pressures could spill into services, an area the Fed watches closely for signs of “stickiness.” The Cleveland Fed’s sticky-price CPI — which tracks items like rent, dining out, and household furnishings — is already at its highest three-month annualized rate since May 2024, at 3.8%.
JPMorgan projects tariffs will shave just under 1% from GDP, with consumer spending — two-thirds of U.S. economic activity — taking the largest hit. The Blue Chip Economic Indicators survey for August pegs second-half growth at 0.85%, slightly better than July’s forecast as some pessimism eases, but still sluggish.
Risks are set to intensify later this month when the Aug. 29 expiration of “de minimis” tariff exemptions will subject goods under $800 to new duties, likely hitting retail products hard.
Despite the inflation outlook, most forecasters believe the Federal Reserve will still move toward rate cuts later this year, citing a weakening labor market and the view that tariff-driven price pressures will be temporary. But PNC chief economist Gus Faucher cautioned that “core PCE inflation is set to move even further above the Fed’s target in the months ahead,” which could make policymakers more hesitant.
For now, Wall Street’s message is that the inflation bite from tariffs may be delayed, but it’s coming — and, in the words of Goldman’s Mericle, “consumers should be ready for it.”