Goldman Sachs Study: Tariff Costs Shifting Toward American Consumers, Raising Inflation Risks

New research from Goldman Sachs highlights a notable change in who ultimately pays for the tariffs imposed by the Trump administration. Led by chief economist Jan Hatzius, the study finds that through June American consumers had directly absorbed only about 22% of tariff costs, while businesses took on the lion’s share. That balance, however, appears to be shifting: as firms raise prices, a growing portion of the tariffs is being passed along to end buyers. If current pass-through trends persist, Goldman Sachs estimates consumers could come to bear roughly 67% of the tariff burden.

How tariffs are allocated across the economy matters because they act like taxes on imported goods. When producers initially absorb tariffs, they may see narrower profit margins, pay lower wages, or reduce investment. Over time, though, many firms pass costs into their retail prices, shifting the burden to households. Goldman’s analysis suggests that the initial protection of consumers from tariff effects is eroding as companies increasingly adjust pricing to preserve margins. The speed and extent of that pass-through will be an important determinant of inflationary pressure in coming months.

Goldman Sachs also quantifies the potential macroeconomic impact. Their calculations indicate that if tariffs remain in place and the current pricing behavior continues, core personal consumption expenditures (PCE) inflation—the Federal Reserve’s preferred inflation gauge—could rise to about 3.2% year-over-year by December. By contrast, Goldman models core PCE at roughly 2.4% year-over-year in a scenario without the tariffs. That 0.8 percentage-point gap would be meaningful for monetary policy decisions, particularly given the Fed’s dual mandate to promote price stability and full employment.

The prospect of higher inflation driven by tariffs creates a tricky policy dilemma for the Federal Reserve. On one hand, President Trump has been urging interest-rate cuts to support growth, placing public pressure on the central bank. On the other hand, rising inflation expectations could argue for either a pause in easing or a different policy stance to prevent inflation from becoming entrenched. Market participants are already pricing in the uncertainty: more than 80% of bond traders surveyed expect a rate cut in September. Still, the ultimate path of monetary policy will depend heavily on incoming data—including the speed at which tariff costs are passed through to consumer prices.

For households, the shift from corporate absorption to consumer price increases would mean higher out-of-pocket costs for many everyday items. Even modest increases across a broad basket of goods can erode purchasing power, particularly for lower-income households that spend a larger share of income on necessities. For businesses, the initial phase of absorbing tariffs can compress profit margins, but widespread price adjustments could restore corporate profitability while transferring the burden to consumers.

Financial markets and policymakers will be watching several indicators closely: core PCE inflation, retail price indexes, corporate margin reports, and the pace of price increases in sectors most exposed to imported inputs. The interplay among tariffs, pricing behavior, and monetary policy will likely be a key theme in upcoming economic data releases and Fed communications. Goldman Sachs’ findings suggest that what has so far been a partial insulation of consumers from tariff costs may be temporary, with potentially significant implications for inflation and interest-rate expectations.

In short, the Goldman study underscores that the distribution of tariff costs is evolving. While businesses initially absorbed most of the financial hit, the trend toward passing costs to consumers could raise core inflation materially by year-end if it continues. That shift heightens the policy trade-offs facing the Federal Reserve and will influence how markets price the future path of interest rates.