Goldman Sachs estimates President Trump’s tariff hike proposal would push inflation up by nearly 1%

President-elect Donald Trump’s latest tariff proposals are likely to put upward pressure on U.S. inflation, according to Goldman Sachs.

On Monday, President Trump announced on the social media site Truth Social that he would impose 10% tariffs on products from China and 25% tariffs on Canada and Mexico. Goldman chief economist Jan Hatzius said in a note that the proposed tax would result in a significant increase in U.S. consumer prices.

“Based on the rule of thumb that for every percentage point increase in the effective tariff rate, core PCE prices increase by 0.1%, we estimate that core PCE prices would increase by 0.9% if the proposed tariff increases are implemented,” Hatzius said. “I am doing so,” he said.

“PCE” refers to the Personal Consumption Expenditures Price Index, which is the Federal Reserve’s preferred measure of inflation.

Tariff-related increases in core PCE could confound the Fed’s rate cut calculations. PCE data for October is expected to be released on Wednesday, with the core sector expected to rise 2.8% year-on-year, according to economists surveyed by Dow Jones. In other words, inflation is still above the Fed’s 2% target, and tariffs could widen the gap even further.

Traders are dialing back their expectations that the Fed will cut interest rates in 2025, but it’s unclear how much of that is due to the election result or the resilience of the U.S. economy. Fed Chairman Jerome Powell said the Fed will consider the impact of tariffs and other fiscal policy changes on the direction of inflation as more details become available.

To be sure, it remains to be seen whether tariffs will actually be implemented at the levels President Trump has proposed, or what exceptions will be made. The president-elect suggested in social media posts that the tariffs are contingent on changes to immigration policy and drug enforcement, particularly on fentanyl. Some of Mr. Trump’s advisers and supporters characterize the tariffs he proposed during the campaign as negotiating positions rather than established policy.

Hadsius said Canada and Mexico are more likely to avoid full tariffs than China.

Goldman Sachs estimates that the three countries in question account for 43% of U.S. imports and could generate just under $300 billion a year in revenue from tariffs.