US businesses and consumers have paid for tariffs, pushing up inflation

New York Federal Reserve president John Williams on Tuesday defended a study released by his regional bank that found President Trump’s tariffs have been overwhelmingly borne by US consumers and businesses — and that their full effect hasn’t yet been felt.

Williams called the research “consistent with findings from other researchers” and an “incredibly important contribution” to the central bank’s understanding of the impact of tariffs on inflation.

“It’s not in any way partisan or political,” Williams told reporters. “It’s really helping us understand. So, from the point of view of the criticism of that, people can criticize the research and disagree with it. That’s normal.”

The Trump administration blasted the study, with National Economic Council Director Kevin Hassett calling it an “embarrassment” and the “worst paper I’ve ever seen in the history of the Federal Reserve System.”

The study, released last month, showed that 94% of tariffs were borne by the US in the first eight months of 2025. Just 6% of those costs were absorbed by foreign exporters.

Williams said it’s important to understand, in the context of the Federal Reserve’s independence, that all 12 reserve banks and the Board of Governors conduct research, with a wide variety of economists working to understand these issues.

Read more: 5 ways to tariff-proof your finances

For his part, Williams estimated that tariffs have increased inflation between half and three-quarters of a percentage point to date. Based on the Fed’s preferred inflation gauge, inflation was 3% as of December, a full percentage point above the central bank’s 2% goal.

“Owing to the effects of tariffs, progress toward that goal has temporarily stalled,” he said.

Despite the lack of headway, Williams said there are no signs of significant second-round effects from tariffs and no global supply-chain bottlenecks have emerged.

He also said underlying inflation, excluding imported goods, has been moving in the right direction, but he still expects some tariffs to be passed through to consumer prices during the first half of this year.

“I expect the tariffs largely to have one-off effects on prices,” Williams said. “Therefore, I anticipate inflation to start coming back down later this year when the peak effect of tariffs on the inflation rate is behind us.”

The Supreme Court recently struck down a large portion of President Trump’s tariffs issued under emergency economic powers, leaving lingering questions about whether businesses will receive refunds for tariffs they had to pay that were not legal. The president and his administration, meanwhile, have moved to replace those tariffs, starting with a new global 10% tariff, with more expected under different authorities.

‘Nobody can be sure’ how the Iran war will affect the economy

Williams on Tuesday also addressed the war in Iran, saying it will impact the outlook for inflation in the near term and raise uncertainty for the economic outlook.

Increases in energy prices, already seen in the first days of the war, is “something that would obviously affect kind of a nearer-term inflation outlook,” Williams said. “We’ll have to see how persistent this is and how long this is, but it would have an effect on overall inflation.”

Read more: What an extended war with Iran could mean for gas prices

Williams also noted that the Iran war raises uncertainty about the outlook for the economy.

“Nobody can be sure of how long this will last or the broader implications of these events in terms of financial conditions and oil prices,” he said.

However, the US isn’t as dependent on oil as it was 50 years ago, Williams noted. Experience has shown that movements in oil prices don’t fundamentally shift the economy.

Separately, as jitters continue to roll through markets about private credit given redemptions from private credit fund manager Blue Owl, Williams noted private credit is still a “relatively small” part of the financial system.

He called recent developments with Blue Owl “primarily adjustments to that sector, not a fundamental threat to underlying private credit.”

“These are kind of adjustments, perhaps are not that surprising as people assess things in financial markets and investors assess that,” Williams said.

He said the Fed is paying close attention to lending and financial activity outside of the regulated sector.

“I don’t see this as a huge issue for financial stability right now, but definitely something we want to continue to monitor,” he said.

Williams also said the job market appears to have stabilized and that he expects economic growth to pick up this year.

Jennifer Schonberger is a veteran financial journalist covering markets, the economy, and investing. At Yahoo Finance she covers the Federal Reserve, Congress, the White House, the Treasury, the SEC, the economy, cryptocurrencies, and the intersection of Washington policy with finance. Follow her on X @Jenniferisms and on Instagram.

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