The Fed’s Tariff Study Assumes Its Own Conclusion

The New York Fed recently released a paper authored by Mary Amiti and her team, discussing the impacts of tariffs. This paper has been interpreted by many as evidence that tariffs have led to increased consumer prices, with some reports suggesting that tariffs caused goods inflation to rise by 2.9 percentage points.

However, the paper does not actually support this conclusion.

First of all, it doesn’t demonstrate — nor does it claim — that tariffs boosted overall inflation by 2.9 percentage points. The study only examines about 20 percent of the consumer basket. If you were to translate this estimate in terms of overall consumer prices, it would be around six-tenths of a percentage point, without considering other economic factors.

Moreover, the notion that tariffs have driven overall inflation higher is contradicted by the fact that during the time frame examined in the study, inflation actually decreased. For instance, in February 2025, when the tariffs were imposed, overall consumer prices had increased by 2.8 percent compared to the previous year, while core prices—excluding food and energy—were up by 3.1 percent. By February 2026, these figures had dropped to 2.4 percent and 2.5 percent, respectively. This claimed contribution from tariffs to overall prices is about the same size as the drop in core inflation seen during that period. If we take the paper’s reasoning at face value, it suggests that overall inflation could have fallen to around 1.8 percent instead of the 2.4 percent recorded, indicating a drop significantly greater than what actually occurred.

Does anyone honestly think we’d be seeing inflation below two percent without tariffs?

Additionally, the 2.9 percentage point figure is derived from a limited calculation relating solely to goods prices, excluding areas like services, housing, and energy commodities.

Furthermore, this finding is likely more limited than many readers might believe. The researchers have not convincingly established that goods inflation would have been 2.9 percentage points lower if tariffs had not been imposed. Their approach assumes that price movements for other goods would have remained unchanged, which may not necessarily be true.

The Missing Price Tag

The methodology utilized in the paper looks at how goods prices changed in relation to the level of tariff exposure, but it fails to pinpoint the economy-wide effects of tariffs.

The authors refer to this issue as the “missing-intercept problem.” They admit, “The counterfactual therefore treats these relative price effects as absolute ones.”

This remark deserves more attention than it’s receiving, as it indicates that the reported 2.9 percentage point increase in goods prices may simply be an artifact of the framework that assumes tariffs raised some consumer prices without affecting others — an assumption that seems unlikely.

For example, if tariffs increase the price of a washing machine, a household purchasing it may then have less available funds for other purchases, such as clothing or dining out. This could create downward pressure on prices elsewhere. The study may not account for this dynamic, which is critical.

If washing machine prices rise but furniture prices drop, there may be no real effect on either goods inflation or overall inflation. The price hike in one category could be offset by a decrease in another.

Why would this offsetting be plausible? Because tariffs do not provide households with extra spending power. Without a corresponding relaxation in monetary policy, increased spending on affected products has to come from other areas. The paper doesn’t demonstrate that either, because it appears it simply didn’t occur. Jerome Powell and other Fed officials have explicitly stated their concerns regarding the inflationary impacts of tariffs. Powell mentioned that the Fed was postponing cuts due to tariffs, implying that their policy was tighter than it would have been without these measures. This creates the potential that inflation might have actually been higher without tariffs, a consideration that the authors may not be keen to entertain. There’s also no evidence to suggest that consumers adjusted their spending habits in response to tariffs. Tax cuts, for instance, may boost purchasing power, but you’d need to show that those tax cuts would not have occurred if tariffs hadn’t been implemented. In reality, monetary policy, tax measures, and household spending patterns did not adjust in a way that expanded spending in response to tariffs.

Moreover, throughout the year studied, both overall and core inflation displayed a downward trend. A significant question that remains unanswered by their method is whether softer prices in other areas resulted from the tariffs. If that were the case, the actual effect on goods inflation would be less than the 2.9 points reported — possibly much lower, or perhaps even negligible.

A Qualification Lost in Transit

We have been critical of numerous earlier studies from the Fed regarding tariffs, particularly those by Amiti and her colleagues. Thus, we should acknowledge that this paper is considerably stronger than previous tariff research. It examines actual price variations among products and estimates the effects on both imported and domestically produced goods affected by inputs and competition. It traces the journey of tariffs from importation to store shelves and appears to document increases in prices for both tariffed goods and those that compete with them. These are valuable insights that address some of the shortcomings we previously highlighted.

Nonetheless, even with its limited findings on tariff impacts on consumer prices, the Fed researchers have made it impossible for independent review. Have they accurately measured the right product categories? We can’t ascertain this because the paper doesn’t disclose the 67 goods categories it surveyed or their respective weights. While it explains how the sample was constructed, readers are left unable to evaluate which goods were included or excluded, and whether those decisions significantly influence the outcomes. We’re expected to accept these findings simply because they come from Fed economists, as if they could never err or intentionally select a basket of tariffed goods that supports the notion that tariffs are inflationary.

The Liberty Street Economics blog details in a post related to the paper that its methodology cannot clarify how much of the broader price fluctuations were due to tariffs. However, it then asserts that without tariffs, goods prices would have slightly declined. Even the paper’s own commentary on its chart suggests that the contribution it outlines is illustrative rather than an absolute measure of aggregate goods inflation.

The Fed has established a considerable collection of research on tariffs and their pricing effects. This particular paper even cites studies from multiple areas within the Federal Reserve System. It would be reasonable to surmise that the Fed — which allowed inflation under Biden to reach a 40-year high — has become overly fixated on portraying tariffs as harmful policies that negatively impact consumers.

Nevertheless, considering all this research, even the estimated six-tenths contribution to overall prices still only offers a calculation that fails to incorporate how markets and consumers responded to rising prices.