Tariff impact is being passed on to American consumers, Goldman Sachs warns of inflation and risk of US debt.

Research by Goldman Sachs shows that the impact of President Trump's tariff policy on consumer prices has only just begun, adding more uncertainty to the already turbulent US bond market due to expectations of interest rate cuts. Goldman Sachs economists Jan Hatzius and others wrote in a report that US companies have so far borne most of the impact of Trump's tariffs, but as companies raise prices, the burden will increasingly shift to consumers. They wrote that as of June, US consumers were estimated to have absorbed 22% of the tariff costs, but if the latest tariffs follow the tax pattern of previous years, the burden on consumers will rise to 67%. The ultimate result is: inflation accelerates. Goldman analysts stated that one of the inflation indicators favored by the Federal Reserve, the core personal consumption expenditures price index, is expected to rise by 3.2% year-on-year in December. They said that the potential inflation rate after deducting tariffs will be 2.4%. In June, the index was 2.8%. This report further confirms the widely held view among economists that Trump's comprehensive tariffs will exacerbate inflation, making Federal Reserve policy a hot topic not only for bond traders but even for the president himself. Trump has broken convention by openly calling for a rate cut by the Fed, suggesting that Fed Chairman Powell resign, and proposing the addition of at least one ally to the monetary policy committee. Bond traders are now awaiting Tuesday's inflation data to look for clues on how quickly the Fed could cut rates. The yield on the 10-year US Treasury rose by about 7 basis points last week, but fell during Monday's European trading session. Traders currently estimate an over 80% likelihood of a rate cut at the Fed's September meeting, but the prospect of further policy easing in the coming months remains uncertain due to the impact of tariffs on inflation. Tariff impact Most economists believe that tariffs will push up inflation, as logically, companies will pass on the additional costs to customers. However, this view is not universally accepted - the debate partly hinges on definitions. Oren Cass, founder and chief economist of the American Beijing Compass Technology Development organization, said in a podcast: "Inflation, of course, is related to central bank monetary policy, involving a sustained increase in the overall price level. If you choose a specific policy and redesign a one-time change in the price of something, that's not the kind of inflation you'd want the central bank to worry about." Goldman's analysis indicates that companies have not raised prices all at once, supporting the view that tariffs will ultimately push up inflation. Goldman stated that so far, the tariff effect has raised the core personal consumption expenditures price index by 0.2%, with an expected additional increase of 0.16% in July and a further increase of 0.5% for the remainder of the year. The report stated that US companies have borne about 64% of the tariff impact so far, but as they pass on more costs to consumers, this percentage will drop to below 10%. Analysts added that the impact on US companies has been mixed - while some companies have borne a larger share of the tariff impact, domestic producers unaffected by competition have raised prices and benefited from it. These speculative price increases also contribute to inflation. Goldman Sachs stated that as of June, foreign exporters were estimated to have absorbed 14% of the tariff costs, but their share could rise to 25%. They said the slight decline in the prices of imported goods subject to tariffs can measure the impact on foreign exporters.