Federal Reserve researchers have concluded that Trump administration tariffs are experiencing "full pass-through" to consumers, adding approximately 0.80 percentage points to core inflation—contradicting White House claims that American companies could absorb the costs.

The Dallas Fed study, published last week, reveals that without tariff-related expenses, core inflation in March would have measured around 2.3% instead of the recorded 3.2%—the highest level since 2023. That nearly full percentage point difference matters enormously when the Fed is trying to bring inflation back to its 2% target.

Here's what changed. Businesses initially attempted multiple strategies to avoid raising prices: sourcing goods domestically, finding alternative trading partners, or absorbing duties through lower margins. Those options are now exhausted. Companies face unavoidable tariff expenses they can only pass along through higher prices, and consumers are paying the bill.

The researchers analyzed "realized rates"—actual duties collected at ports—rather than announced tariff levels. These realized rates ended 2025 at 9.4%, historically elevated but lower than some projections. Even at that level, the economic impact is substantial and measurable in aggregate inflation data.

Let's calculate the household cost. Earlier New York Federal Reserve analysis indicated consumers and companies paid nearly 90% of tariff costs. The Tax Foundation estimated Trump's 2025 tariffs amounted to a $1,000 annual tax increase per household, with 2026 projections around $700 per household. That's real money coming out of family budgets for groceries, electronics, clothing, and other imported goods.

The products seeing the biggest increases span categories: consumer electronics with Chinese components, apparel and footwear, home goods, and certain food items. Retailers initially absorbed costs to maintain market share, but margin compression has limits. Now they're raising prices or shrinking package sizes—both effectively pass costs to consumers.

This directly contradicts administration claims. White House officials repeatedly argued that tariffs would primarily impact foreign exporters or be absorbed by domestic companies through efficiency gains. The Fed data shows that was wishful thinking. Basic economics prevailed: when you tax imports, prices rise.

Markets have largely ignored this inflation pressure, but that disconnect won't last indefinitely. If the Fed sees persistent tariff-driven inflation preventing rate cuts, equity valuations built on near-term easing assumptions will need adjustment. The numbers don't lie, but executives sometimes do—and so do policymakers claiming tariffs are "free money" for the Treasury.