Breitbart Business Digest: The Fed’s Tariff Math Doesn’t Add Up to Inflation

The Fed’s Tariff Study Assumes Its Own Conclusion The New York Fed has posted yet another paper by Mary Amiti and a team of economists on the costs of tariffs. It’s widely being read as showing that tariffs have pushed up consumer prices, with many reports claiming that goods inflation ran 2.9 percentage points higher because of tariffs. In reality, however, the paper shows no such thing. In the first place, the paper does not show and does not even claim that tariffs pushed up overall inflation by 2.9 percentage points. Its sample covers just 20 percent of the consumer basket. Translate the estimate into a contribution to overall consumer prices and you get roughly six-tenths of a percentage point, before accounting for anything happening elsewhere in the economy. The idea that tariffs drove overall inflation higher is challenged by the fact that over the year the paper studies, inflation actually fell. In February 2025, when the tariffs began, overall consumer prices were up 2.8 percent from a year earlier, and core prices, excluding food and energy, were up 3.1 percent. By February 2026, those rates had fallen to 2.4 percent and 2.5 percent, respectively. The claimed tariff contribution to overall prices is roughly the size of the decline in core inflation during the same period. Taken at face value, the paper’s logic implies that overall inflation would have fallen to about 1.8 percent instead of 2.4 percent, a decline more than twice as large as the one that actually occurred. Does anyone really believe we’d be below two percent inflation if not for tariffs? What’s more, the 2.9 point figure comes from a more limited calculation about goods prices. Services, housing, and energy commodities are excluded. But even this finding is much more limited than many readers think. The researchers do not establish that goods inflation would have been 2.9 percentage points lower without tariffs. Their calculation treats the broader price movements affecting other goods as though those movements would have happened anyway. The Missing Price Tag The paper’s statistical method measures how prices changed for goods with greater tariff exposure relative to goods with less exposure. But it cannot separately identify the economy-wide price effects of tariffs. The authors call this the “missing-intercept problem.” They acknowledge: “The counterfactual therefore treats these relative price effects as absolute ones.” That sentence deserves considerably more attention than it has received. It is an admission that the 2.9 percentage point increase in goods prices is an artifact of treating tariffs as if they pushed up some consumer prices while leaving other prices unchanged. But that is extremely unlikely. Suppose tariffs raise the price of a washing machine. A household buying one now has less money available for clothes, furniture, or a restaurant dinner. That puts downward pressure on other prices. And if the offset lands on services, the study can’t see it at all. If washing machines rise while furniture prices soften, there might be no effect on goods inflation or overall inflation at all. The price increase in one product category is offset by another. Why is that likely? For the simple reason that tariffs do not give households additional spending power. Unless the Fed eases policy to accommodate tariffs, higher spending on affected goods must come out of other spending or savings. The paper doesn’t show either and that’s because neither happened. Jerome Powell and his fellow Fed officials made it clear it would not accommodate tariffs, repeatedly saying that they were worried about the inflationary effects of tariffs. Powell explicitly said that the Fed was holding off on cutting because of tariffs—which means policy was tighter than it would have been absent tariffs. That raises the possibility that inflation might have been higher absent tariffs, something Amiti and company are probably not ready to consider. And there’s no evidence that consumers changed their mix of spending and saving in reaction to tariffs. Tax cuts could create more spending power, but you’d have to show that the tax cuts would not have happened absent the tariffs. In reality, monetary policy, tax policy, and household spending and saving were not moved in a way that expanded spending in response to tariffs. And remember that over the year studied, both overall and core inflation fell. The question their method cannot answer is whether softer prices elsewhere were themselves caused by tariffs. If they were, the net effect on goods inflation is smaller than 2.9 points, perhaps much smaller. Perhaps nothing at all. A Qualification Lost in Transit We’ve been critical of a lot of the earlier Fed tariff papers, particularly those from Mary Amiti and her fellow travelers. So we should admit that this paper is substantially stronger than the earlier tariff research. It examines actual price differences across products and estimates effects on both imported goods and domestic goods exposed through inputs or competition. It traces tariffs from the dock to the store shelves, and appears to document price increases in tariffed goods and goods that compete with tariffed goods. Those are useful findings that correct some of the flaws we pointed out. But even when it comes to the limited findings about tariff pass-through to consumer prices, the Fed researchers render independent scrutiny impossible. Have they measured the right product categories? We cannot know because the paper does not list the 67 goods categories included in its consumer-price sample or their individual weights. It explains how the basket was constructed, but readers cannot examine which goods were included, which were omitted, and whether those choices materially affect the result. We’re just supposed to trust them because they’re Fed economists, and they would never make a mistake or willfully construct a basket of tariffed goods that advance the view that tariffs push up prices. The Liberty Street Economics post about the paper acknowledges that its method cannot establish how much of the broader price movement was itself caused by tariffs. But it then declares that without tariffs, goods prices would have fallen slightly. But even the paper’s note on its own chart says the contribution is illustrative rather than an absolute contribution to aggregate goods inflation. The Fed has produced a small library on tariffs and prices. This paper alone cites work from seven corners of the Federal Reserve System. You might reasonably conclude that the Fed—which let inflation under Biden rise to the highest level in 40 years—is obsessed with showing that tariffs are no good, very bad policies that hurt consumers. But after all that research, even the roughly six-tenths contribution to overall prices only amounts to an estimate that doesn’t take into account how the market and consumers reacted to higher prices.