10/31/2026
President Donald Trump Just Proclaimed, "Tariffs Don't Cause Inflation, They Cause Wealth," but Data From Federal Reserve Economists Show Otherwise
https://www.fool.com/investing/2026/10/25/donald-trump-proclaimed-tariffs-dont-cause-inflation-they-cause-wealth-federal-reserve-economists/
Statistically speaking, tariffs have been bad news for Wall Street and consumers.
Key Points
Although the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite have delivered outsize returns under Donald Trump, not all of his policies have been well-received by Wall Street.
Tariffs have been foundational to Trump’s presidency.
Not only are the president’s tariffs raising consumer prices, according to New York Federal Reserve economists, but they’re also having a lasting negative impact on select public companies.
Trumpflation could do a real number on a historically pricey stock market.
From a purely statistical standpoint, Wall Street has enjoyed having President Donald Trump in the White House. Even accounting for a few periods of historic volatility (e.g., the COVID-19 crash in February-March 2020 and the tariff tantrum of April 2025), the average annual return of the Dow Jones Industrial Average (^DJI -1.09%), S&P 500 (^GSPC-1.82%), and Nasdaq Composite (^IXIC
-2.86%) has been higher under Trump than under most presidents since the late 1890s.
However, this doesn't mean that all of the president's policies are necessarily well-received on Wall Street. For example, Trumpflation (inflation specifically driven by Donald Trump's policies) is a genuine threat to the artificial intelligence (AI)-driven bull market.
President Trump sees things differently. While speaking to an audience at a campaign rally in Montana ahead of the Nov. 3 midterm elections, Trump touched on inflation and the role his tariff and trade policy may have played in it. Said the president:
We don't have inflation, and tariffs don't cause inflation.
You know what they cause? Wealth.
Although Trump insists that tariffs aren't contributing to persistently elevated inflation and are beneficial to the U.S. economy, reports from New York Federal Reserve economists show otherwise.
Tariffs have been foundational to Donald Trump's presidency
While tariffs have been a hot-button topic since Trump's second non-consecutive term began in January 2025, they've been a theme throughout both of his terms. In 2018, the Trump administration kicked off a trade war with China, imposing tariffs on washing machines, solar panels, steel, aluminum, and various tech goods.
President Trump's tariffs had three purposes:
To protect American jobs
To encourage overseas companies to manufacture goods bound for the U.S. in this country
To make U.S.-made products more price-competitive with those imported
According to Washington, D.C.-based think tank The Tax Foundation, which has been regularly updating its Tax Foundation General Equilibrium Model to account for dozens of tariff changes since April 2025, the president's tariffs are projected to bring in $1.426 trillion in revenue from 2026 to 2035. While it's not the "trillions of dollars" Trump proclaimed the U.S. was bringing in from tariffs, there is a path to significant revenue collection over the next decade.
Unfortunately, economists have also shown that President Trump's tariff and trade policy comes with several unintended and undesirable consequences.
Trump's tariffs are potentially bad news for consumers, the economy, and Wall Street
To begin with, The Tax Foundation's model estimates that hours worked would convert to a loss of 338,000 full-time-equivalent jobs. Furthermore, it projects that U.S. gross domestic product (GDP) would decline by 0.4%. In other words, The Tax Foundation foresees the president's tariffs hindering, not helping, the U.S. economy over the next decade.
But these long-term projections might be the least of consumers' and Wall Street's worries.
According to a newly released report ("How Fast Do Tariffs Pass Through into Consumer Prices") by three New York Federal Reserve economists writing for Liberty Street Economics, the president's tariffs are having a decisively negative impact on consumer prices.
The trio of economists estimate that the president's 2025 tariffs added 2.9 percentage points to consumer prices by February 2026. The real kick in the pants is that prices would have declined without Trump's tariffs.
New from the New York Fed: "By February 2026, tariffs had contributed 2.9 pp to goods price inflation, and without them goods prices would have fallen slightly." About one quarter of every point in higher tariff rates shows up in consumer prices within one year.
• A 10% across-the-board tariff yields a 2.6% rise in consumer goods prices after one year.
• About two thirds of the increase comes from pricier imports, which get passed through quickly.
• Another third comes from U.S. made goods, as producers face higher input costs and less import competition. This takes longer, about 6-12 months, to filter through.
— Nick Timiraos () October 6, 2026
In addition to tariffs adding to consumer costs on a near one-for-one basis, assigning duties to unfinished imported goods, such as steel, can increase domestic manufacturing costs. Furthermore, economists suggest that when U.S. goods were notably cheaper than imported products, domestic producers would occasionally raise their prices to capture some of this difference.
In December 2024, a separate report from Liberty Street Economics ("Do Input Tariffs Protect U.S. Firms?") found that Trump's 2018 China tariffs increased consumer prices and led to worse future real outcomes for public companies whose stock declined on tariff announcement days. Specifically, these businesses witnessed drop-offs in labor productivity, employment, sales, and profits from 2019 to 2021.
What's especially damning for Wall Street is the effect tariffs are having on the prevailing inflation rate. Although tariffs are one of several puzzle pieces boosting consumer prices, they've also played a role in prompting the Federal Reserve to act. In September, the Federal Open Market Committee (FOMC) kicked off only its fourth rate-hiking cycle of the 21st century.
Between the inflationary effects of the Iran war, the AI infrastructure build-out, and Trump's tariff and trade policy, it's likely that the FOMC will get more aggressive with interest rate hikes in 2027 to deliver price stability. If this happens, it could slow the partially debt-driven AI data center build-out. A historically pricey stock market can ill afford any slowdown from its leading catalyst.
While Trump's tariffs are on track to bring in well over $1 trillion in revenue for the U.S. government over the next decade, their cost to consumers, the U.S. economy, and Wall Street may be far greater.
Statistically speaking, tariffs have been bad news for Wall Street and consumers.