🚨 A recent #Federal Reserve analysis is adding nuance to the tariff–inflation debate, and markets are reacting with caution.
A report from the San Francisco Fed suggests that large tariff increases—such as the roughly 15% average rate seen in 2025—may actually reduce inflation by weakening consumer and business demand. The argument is that higher tariffs raise uncertainty, pressure asset prices, and ultimately slow spending, offsetting direct price increases.
This view contrasts sharply with other Fed research, including work from the St. Louis and Boston Feds, which finds that tariffs tend to feed through to higher consumer prices. The internal disagreement has added to policy uncertainty, keeping equity markets volatile and largely range-bound as investors reassess inflation risks.
For now, markets appear highly sensitive to Fed communications and tariff-related headlines. Until there is clearer consensus on how tariffs affect inflation, volatility is likely to persist, with investors balancing growth risks against the possibility of shifting monetary policy.
