Goldman Sachs economists stated in a research report released last weekend that by the end of this year, US consumers will more clearly feel the impact of tariffs. This triggered dissatisfaction and criticism from US President Trump. He posted on social media suggesting that Goldman Sachs CEO David Solomon fire the economists who wrote the report or consider resigning himself.

Goldman Sachs economist David Mericle defended the bank's views in an interview on Wednesday, stating that they would not waver due to Trump's criticism. Importantly, Goldman Sachs is not the only Wall Street institution holding this view. Although the relatively mild US July CPI data released on Tuesday prompted a positive market reaction, economists generally expect that the full impact of tariffs on inflation has yet to materialize.

Inflation Set to Rise

Economists believe that as inventories stockpiled by businesses ahead of tariff implementations are gradually depleted, effective tariff rates continue to climb, and companies become increasingly unwilling to absorb the higher costs brought by tariffs, consumers will feel mounting price pressures more noticeably in the remaining months of the year.

Michael Feroli, Chief US Economist at JPMorgan, said, "Tariffs could reduce GDP by 1% and raise inflation by 1% to 1.5%, with some of this impact already occurring." "There is significant uncertainty about the extent to which tariff costs will pass through to consumer prices, as this year's tariff hikes are far higher than any US experience since World War II."

Most expect prices to rise steadily at least, as tariff policies become clearer and effective tariff rates solidify at around 18% (up from about 3% at the start of the year), though some limiting factors remain. Brian Rose, Senior Economist at UBS, noted, "The downward trend in core inflation appears to be broken as tariffs begin to feed into retail prices." "We expect inflation to continue rising gradually as businesses pass on higher costs, but slowing housing inflation and increasingly strained consumer spending should partially offset the impact of tariffs."

No one predicts runaway inflation, with most forecasting month-on-month increases of 0.3%-0.5%. This would be enough to push the Fed's preferred core inflation gauge into the low-to-mid 3% range. Moreover, regardless of the degree of inflation acceleration, it is not expected to prevent the Fed from starting rate cuts in 2025, assuming a wait-and-see stance throughout the year. Economists believe that a weak labor market and the perception that inflation rises are temporary will pave the way for looser monetary policy.

However, in the short term, rising inflation could curb consumer spending and weigh on economic growth for the rest of the year. JPMorgan expects the hit to GDP (two-thirds of which comes from consumption) to be "slightly below 1%."

The August Blue Chip Economic Indicators report—which surveys top Wall Street economists—projects US GDP growth in the second half of the year at just 0.85%. This is actually an improvement from July's 0.75% forecast, as some of the most pessimistic forecasters revised their views, believing that "the restrictive effects of tariffs are expected to be temporary, with growth likely to improve significantly next year."

Future Concerns

Short-term concerns include the expiration of the "low-value exemption" on August 29, which previously allowed goods worth less than $800 to enter the US duty-free. This could particularly hit retail goods.

Pantheon Macroeconomics expects core inflation to rise by 1 percentage point, reaching 3.5% by year-end. The firm said, "So far, only about a quarter of this increase has been passed on to consumers, so we see a high likelihood of faster core goods price increases in the coming months."

BNP Paribas noted that price increases are expected to extend beyond goods, as recent surveys "show upward pressure on input prices in the services sector." The bank stated in a report, "The Fed's main concern about inflation is not the specific level but its stickiness." "The July CPI data showed unexpectedly strong core services prices, so it wasn't convincingly good news."

Inflation Stickiness

Additionally, so-called inflation "stickiness" is a key issue. The Cleveland Fed's "sticky price CPI" inflation measure—which includes items like rent, dining out, insurance, and household goods—shows steady increases, currently at an annualized 3.8% over three months, the highest since May 2024. In contrast, "flexible price" inflation (e.g., food, energy, auto parts) is much lower.

Gus Faucher, Chief Economist at PNC, said, "Tariffs will push inflation higher in the coming months." "With July core CPI rising and businesses passing on higher tariff costs to consumers, core PCE inflation will further exceed the Fed's target in the coming months." He added that while most on Wall Street expect a path to rate cuts, higher inflation could cause some hesitation among policymakers even if the labor market weakens.