Trump Says Tariffs Don’t Cause Inflation. The Fed Counts 2.9 Points.
President Donald Trump stood in Montana and said, “We don’t have inflation, and tariffs don’t cause inflation.” The New York Fed has a different arithmetic.
President Donald Trump stood in Montana and said, “We don’t have inflation, and tariffs don’t cause inflation.” The New York Fed has a different arithmetic problem: by February 2026, his tariffs had added 2.9 percentage points to goods price inflation.
That is not a small rounding error. It means goods prices would have fallen slightly without the tariffs, according to three New York Federal Reserve economists writing for Liberty Street Economics.
The timing matters. The president made the claim at a campaign rally ahead of the midterm elections. A study published days earlier found tariffs had raised prices. The two facts do not sit comfortably together.
What the economists found
The report, “How Fast Do Tariffs Pass Through into Consumer Prices,” examined the 2025 tariffs. It found that every percentage point increase in average tariffs translated into a quarter-percentage-point increase in consumer prices after one year.
Put plainly, the duty does not stay at the dock. It reaches the receipt.
About two-thirds of the price increase came directly from duties on imported products. The remaining third came indirectly: American producers faced higher input costs and less import competition, then passed some of that along.
The economists also found no evidence that consumers received offsetting benefits from the tariffs. That is the part worth pausing on. A tariff can protect a producer. The question is whether the buyer gets anything back.
The political version
Trump’s case is familiar. Tariffs create leverage, protect domestic industry, and raise revenue. He told the Montana crowd they cause “wealth.”
There is a real argument in that. Some industries do benefit from protection. Montana lumber mills were part of his pitch.
But the Fed research addresses a narrower question: what happened to consumer prices. On that question, the answer was higher prices, not lower ones.
I have heard this debate before. In 2000, people treated a new economic arrangement as self-financing. In 2008, the bill arrived later and in someone else’s name. Tariffs are not 2008. But the habit of describing a cost as a gift has a long shelf life.
The second problem
Tariffs are not the only pressure. The Iran war has disrupted energy markets. The closure of the Strait of Hormuz has been described as the largest energy supply disruption in modern-day history.
Before the war, the strait carried roughly a fifth of the world’s oil and liquefied natural gas. Its disruption pushed oil prices sharply higher and forced businesses to change shipping routes, suppliers, and transport plans.
That matters because energy is not a separate line item. Fuel moves food, parts, inventory, and finished goods. When diesel rises, the increase shows up in places that never imported a barrel of oil.
So the economy now has two inflation channels. One comes from trade policy. The other comes from war and energy. Neither requires a forecast to understand. Both make the price level harder to bring down.
What markets should watch
Wall Street has enjoyed a strong run under Trump. The Dow Jones Industrial Average, S&P 500, and Nasdaq Composite have all benefited from optimism around AI and corporate earnings. But persistent inflation can change the Federal Reserve’s choices.
If inflation stays elevated, the Fed may need to raise rates more aggressively. Higher rates make future profits worth less today. That is the simple mechanism that can unsettle a bull market.
The AI trade has carried a great deal of the market’s enthusiasm. It does not need a recession to become expensive. It only needs investors to demand a higher return for holding risk. Inflation gives them a reason to ask.
What is known, and what is not
The documented facts are clear enough. Trump made the statement in Montana. New York Fed economists found tariffs added 2.9 percentage points to goods inflation by February 2026. They found no consumer benefit to offset it.
What remains uncertain is how much more tariff pass-through is still in the pipeline, and how long the energy shock lasts. The indirect effects of tariffs can take six to twelve months to work through domestic prices.
It is also unknown whether voters will separate the two issues: tariffs they can see in store prices, and an energy shock tied to a war. Politicians usually prefer one simple explanation. Markets usually get several.
The president says tariffs do not cause inflation. The New York Fed says they added 2.9 percentage points to goods inflation. Both statements cannot describe the same economy.