Boston Fed Study Finds Productivity Offset Tariff Inflation Impact

A new paper from the Federal Reserve Bank of Boston suggests that strong U.S. productivity levels have mitigated the inflationary impact of President Donald Trump's large-scale trade tariffs.

The researchers found that industries hit by higher costs due to tariffs experienced greater labor productivity growth, which helped them offset those increased costs. This meant that while firms faced higher input costs from Trump's tax increases, they were able to maintain output levels by cutting labor inputs and reducing hours worked.

The study concluded that the tariffs added 0.5 percentage point to the core level of the personal consumption expenditures price index since 2025. However, productivity gains strongly offset the increase in consumer prices induced by tariffs, suggesting that inflation may have been closer to 2% rather than the levels observed over the last year.

The authors noted that other factors could have contributed significantly to inflation, which has been above the Fed's 2% target for half a decade. They mentioned the ongoing impact of the Iran war and higher energy prices as potential contributors to price pressures.