Ever since US President Trump announced widespread tariffs globally on "Liberation Day" in early April, the impact of tariffs on US inflation has been a hot topic of discussion among US market participants and Federal Reserve officials.

Economic data from the past six months suggests that the impact of US tariffs on prices has not been as severe as initially feared, which gave Federal Reserve officials a sigh of relief and led them to cut interest rates in September, the first time this year.

Based on statements since September, Federal Reserve Chairman Powell and most Fed officials appear to be leaning toward the view that inflation caused by tariffs is likely temporary.

However, the Atlanta Fed recently cited a Yale Budget Lab survey and warned that the impact of tariffs cannot be taken lightly—they could still drive prices higher, and the impact will persist at least into next year.

Trump's tariffs will still drive up inflation

According to estimates from the Yale Budget Lab, the effective tariff rate borne by US consumers so far this year is approximately 17.9%, which will add 1.7 percentage points to the average price increase for US goods this year and reduce the average US household income by $2,400.

Over the long term, US apparel and leather prices will be 11% and 12% higher, respectively, than they would have been without the import tariffs.

Economists at the Atlanta Fed said: "Businesses' unit cost and price growth expectations have risen significantly since the same period last year, and prices are expected to remain high until 2026."

They said: "Even non-importing businesses (domestic sourcing businesses) not directly affected by the tariff increases expect price increases to accelerate, suggesting that price pressures will expand."

Caution is not permitted

In recent months, several Federal Reserve officials have signaled a dovish tone, arguing that the impact of tariffs on inflation is temporary and limited.

For example, last Thursday (October 16), Federal Reserve Board Governor Christopher Waller stated in a speech:

"While some of the pass-through of tariffs will permanently increase prices, tariffs will only temporarily affect the inflation rate."

Federal Reserve Board Governor Stephen Miran recently made an even bolder statement, claiming that many economists have overestimated the likelihood that tariffs will exacerbate price pressures.

However, on Monday (October 20), Bank of America economists stated in a research note: "We continue to expect tariffs to continue to push up commodity prices in the coming quarters."

They said the US consumer price index likely rose 3% last month (data delayed until Friday (October 24) due to the federal government shutdown), a 0.1 percentage point increase from August and well above the Fed's 2% target.

Atlanta Fed economists also noted some signs that US inflation could still rise, as many businesses plan to raise prices despite a recent slowdown in the pace of raw material price increases.

"Overall, businesses expect price increases to remain high over the next year, despite a slowdown in the trend in unit cost increases," they said.