Economists at Goldman Sachs (GS) say the new round of U.S. tariffs will give inflation a temporary bump later this year — but expect the effects to fade in 2026. In a note released Monday and credited to its chief U.S. economist David Mericle, the bank projected that core PCE inflation will rise to 3.6% by year-end, driven by tariff-related price increases, before easing again next year.
This outlook echoes recent CPI data showing that inflation has cooled in recent months. In April, annual CPI fell to 2.3%, its lowest in several years. Many economists have warned that tariff-driven price pressures could emerge in the coming months, but Goldman stands out for projecting that those effects will be short-lived.
The Federal Reserve, which recently kept rates steady at 4.25% to 4.5%, is still aiming for a 2% inflation target. So even with recent cooling, inflation remains slightly above goal — and still vulnerable to new shocks.
The key difference from the pandemic-era inflation spike is that today’s economy is weaker, Goldman’s memo said. Labor markets are cooler and wage growth is slowing. These factors give the Federal Reserve room to resume rate cuts – maybe, eventually – once the one-time effects of tariffs have played out.
Still, the risks are real. In the memo, Goldman also warned that if country-specific tariffs rise to “prohibitive” levels or escalate into 2026, inflation could stay elevated for longer than expected.
It’s possible to read this memo as Goldman’s message to Washington: Stick to the symbolic stuff. The current round of tariffs may juice inflation slightly, but the economy can absorb it if things stop here. Go further, and the story changes — if country-specific rates rise high enough to create shortages, or if escalation drags into 2026, inflation could get stickier, and the Fed’s hands could be tied.
In other words, you could see this as a quiet warning dressed up as reassurance. For now, Wall Street is willing to treat these tariffs as political theater with a limited shelf life. But if the White House turns a trade war into an actual in-effect policy stance, the forces on Wall Street may stop playing along.
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