US Dollar: Tariff passthrough keeps inflation pressure alive – BNY

BNY’s Geoff Yu reports that the New York Fed’s latest Liberty Street Economics analysis warns many United States (US) firms still plan tariff-related price increases, implying persistent inflation pressures that matter for the US Dollar (USD) and Federal Reserve (Fed) policy. Nearly half of tariff-paying companies expect further hikes, with gradual pricing and fixed contracts extending adjustment and complicating disinflation.

Tariffs extend U.S. inflation timeline

"The New York Fed said in its July 8 Liberty Street Economics post that more tariff passthrough still lies ahead for many U.S. firms. Drawing on regional business surveys, the institution reported that nearly half of firms that pay tariffs directly are still planning further price increases, with some expecting to raise prices six months or more from now."

"It said roughly 47% of service firms and 44% of manufacturers that pay tariffs expect additional tariff-related price hikes. It also noted that gradual pricing, fixed contracts and policy uncertainty are extending the adjustment process, suggesting tariff-driven inflationary pressure may persist longer than many policymakers expected."

"Meanwhile, the Fed minutes did little to dent hawkish rate expectations, and the most reliable route to lower inflation is weaker demand – a path that offers little comfort for equities."

"For all the inflation vigilance, the Fed and its peers recognize that markets remain highly sensitive to supply shocks."

"This week’s energy volatility has already tightened financial conditions, reducing the need to reinforce the case for further rate hikes."