Goldman Sachs Predicts 67% Tariff Costs on US Consumers by October

Goldman Sachs economists have stood by their prediction that American consumers will bear a significant portion of the cost of tariffs, despite criticism from the U.S. President. The economists maintain that consumers will shoulder approximately two-thirds of the tariff burden, a stance that has drawn sharp rebuke from the President, who has suggested that the economists should be replaced or that the CEO of Goldman Sachs should consider a career change.

The economists' report, led by Elsie Peng, indicates that currently, American businesses are bearing 64% of the tariff costs, while consumers are responsible for 22%, and foreign exporters for 14%. However, the report forecasts a significant shift in this distribution. By October, consumers are expected to bear 67% of the tariff costs, and by December, the Personal Consumption Expenditures (PCE) price index is projected to rise by 3.2% year-over-year.

In contrast, the U.S. PCE inflation rate for June was 2.6%, with the core PCE inflation rate, excluding food and energy, at 2.8%. Both figures exceed the Federal Reserve's 2% target, which is a key reason why the Fed has been hesitant to lower interest rates. The economists at Goldman Sachs remain confident in their findings, asserting that their research is robust and consistent with the conclusions of many other economists.

David Mericle, the chief U.S. economist at Goldman Sachs, emphasized that the recent tariffs, such as those imposed in April, follow a similar pattern to the earliest tariffs implemented in February. He predicts that by the autumn, consumers will bear approximately two-thirds of the tariff costs. Mericle also noted that companies protected from foreign competition by tariffs can raise prices and benefit from the situation.

Mericle further commented that the President is likely to receive at least some of the interest rate cuts he has requested from the Federal Reserve. However, he does not anticipate this to have a significant impact on the Fed's policies, as the labor market remains a primary concern for the central bank. Earlier in the day, the U.S. Treasury Secretary had suggested that interest rates should be 150-175 basis points lower than their current levels, implying that the Fed should have acted sooner if the data were accurate.