Federal Reserve researchers find tariffs fully pass on to consumers and inflation

The burden of tariff costs have gone from international trade partners, to U.S. corporations, to the average American shopper. But despite Trump’s repeated claims to the contrary, by virtually all metrics, companies are no longer absorbing tariff costs, leaving consumers most on the hook.

Tariffs are now subject to a “full pass-through” from collection-driven prices to consumer-facing inflation, according to a study by researchers at the Federal Reserve Bank of Dallas, published last week. That means companies are no longer covering the tariff cost by paying duties at the border, but have now fully transferred those costs to the public in the form of higher prices for goods and services. 

The authors found tariffs have already had a measurable impact on inflation, specifically core inflation, which excludes volatile food and energy prices. Year-over-year core inflation hit 3.2% in March, the highest level recorded since 2023, a surge largely attributable to tariff costs, according to the Fed researchers. They estimated core inflation would have been 0.80 percentage points lower in March absent tariffs, coming in at a much more manageable 2.3%.

The Dallas Fed’s report isn’t the first to calculate the consumer cost of tariffs, but its methodology helps validate similar findings. Instead of analyzing tariff rates as announced by the Trump administration, the authors focused on so-called realized rates, or the amount of duties that have actually been collected on goods and services coming into the country. 

Earlier projections of tariff costs were primarily forecasts based on political announcements and fact sheets, which do not always neatly lay the path for how consumers will be impacted. Firms may delay pricing decisions, tweak where they source their imports from, or wait for policy to settle before passing costs through to consumers. 

The Fed researchers ultimately found the actual tariff rate being paid was smaller than what earlier announcements would have implied, but historically high nonetheless. Realized tariff rates ended 2025 at 9.4%, still the highest rate in decades.

But even a smaller actual tariff rate than projected leads to more consumer pain. Those extra costs imply companies have exhausted all possible means to minimize tariff pressure, including sourcing goods domestically or finding alternative trading partners. Those are now unavoidable expenses for companies, which can now only absorb higher costs or pass them on to consumers.

A February analysis from the New York Federal Reserve found U.S. consumers and companies were paying for nearly 90% of tariff costs. Trump’s 2025 tariffs amounted to a tax increase of $1,000 for the average American household, according to a Tax Foundation report in February, which also estimated that a scaled back tariff regime in 2026 would levy $700 per household, on average.

The full effect of tariffs can take time to manifest in consumer prices:seven months, to be exact, according to separate Federal Reserve research published last month, which found that firms tend to preserve consistent profit margins despite changes to tariff policies. That means for every extra dollar companies pay to import a good, sooner or later, consumers will see it added to their bill. 

“If retailers’ acquisition costs for a good rise $1 because of tariffs, they charge $1 more for that good seven months later,” the authors wrote.