Americans are expecting a tariff-fueled price surge. A new Fed survey says they're right.

Key Points

  • Inflation expectations are at their highest since 1981 due to Trump's tariff policies.
  • Businesses plan to pass tariff costs to consumers, with price hikes varying by tariff scenario.
  • The effective tariff rate on US imports has decreased to 22% from 27% after some exemptions were announced.
  • Inflation is expected to rise above 3% this year, influenced by tariffs, according to Federal Reserve presidents.

Summary

The University of Michigan's latest consumer sentiment survey indicates that inflation expectations for the next year are the highest since 1981, driven by President Trump's tariff policies. A Federal Reserve Bank of Boston analysis supports these expectations, revealing that small to medium-sized businesses anticipate passing on the increased costs from tariffs to consumers. The extent of these price increases varies with different tariff scenarios, with the most significant hikes expected under a low-tariff scenario. Despite a slight reduction in the overall effective tariff rate to 22% after some exemptions, the tariff rate on US imports remains at a century-high, pushing inflation expectations up and growth expectations down. Federal Reserve officials predict inflation could exceed 3% this year due to these tariffs. Companies like Volkswagen and Best Buy are already implementing or preparing for price increases to offset tariff costs, signaling a broad impact on consumer prices in the near future.

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April 14, 2025
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