Buying American does not fully shield shoppers from tariffs, and new Federal Reserve Bank of New York research suggests the pass-through to consumer prices is larger and slower than many households expect.
New York Fed Study on Tariff Pass-Through
CPI
The study found that a 10 percentage-point increase in average tariffs lifts consumer goods prices by about 2.6% after a year, with roughly one-third of the increase coming from products manufactured in the United States. That matters because it means tariffs can ripple through domestic supply chains, raising costs for American producers that rely on imported steel, electronics, rubber or aluminum.
Sentiment Indicators
The New York Fed said imported products usually get more expensive first, but domestic goods can take six to 12 months to fully reflect higher input costs. Nearly 90% of the tariffs studied were passed through to U.S. import prices, often quickly, while about half of the direct effect on retail prices showed up within three months.
For investors, the findings reinforce the inflation risk embedded in tariffs at a time when price pressures are already sticky. Consumer prices rose 3.7% in September, while the broader inflation gauge remained elevated, adding to the risk that the Federal Reserve keeps policy restrictive for longer than markets had priced.
The report also helps explain why tariff-driven inflation can linger even after the initial headlines fade. The New York Fed estimated tariffs left consumer goods prices nearly 3% above where they otherwise would have been in February 2026, easing to around 2% by August after policy changes, but not reversing earlier increases.
That dynamic matters for retailers and consumer-facing companies because domestic sourcing is not a clean hedge against tariff exposure. Walmart has said less than one-third of what it sells in the U.S. is imported, while peers such as Costco, Procter & Gamble and Dollar Tree have all flagged cost pressure from tariffs, inflation and supply-chain frictions in recent filings.
Shares of retail and consumer staples funds have reflected the crosscurrents. The SPDR S&P Retail ETF, XRT, closed at $87.65 on Oct. 23 after swinging sharply in recent sessions, while the Consumer Staples Select Sector SPDR Fund, XLP, traded at $88.26, near the top of its recent range as investors looked for defensive shelter.
The broader message for markets is that tariffs are not just a trade-policy story but an inflation story with delayed effects. That keeps pressure on consumer margins, complicates Fed decision-making and leaves shoppers exposed to higher prices long after tariff announcements themselves have faded.
| Entity | Gains | Losses |
|---|---|---|
| Imported goods sellers | ▲Pass on higher costs | ▼Face weaker price competitiveness |
| U.S. manufacturers | ▲Room to raise prices | ▼Higher input and component costs |
| Retailers/consumers | ▲Limited near-term clarity | ▼Higher prices for months |
| Fed hawks | ▲Stronger case for caution | ▼Faster easing hopes fade |
