Consumers fear inflation as tariffs hit home: Federal Reserve report

It’s time to spill the tea.

Yorkshire Gold, to be frank.

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Produced and packaged in the UK, it is the morning libation of choice to please my Anglophile taste buds.

And because of the new U.S. tariffs shaking up the global world economy, I just ordered 320 tea bags on Amazon to delay paying a highly probable price increase.

I’m not the only hot mess steeping with tariff inflation anxiety.

The Federal Reserve Bank of New York’s Center for Microeconomic Data released the July 2025 Survey of Consumer Expectations on Aug. 7.

It shows that U.S. households’ inflation expectations are creeping up.

The New York Fed’s Survey of Consumer Expectations measures how consumers expect overall inflation and prices for food, gas, housing, and education to act.

Image source: Shutterstock

Tariffs tilt consumer price expectations

Tariffs are a levy or external tax on products and services.

President Donald Trump’s off-and-on tariffs hit more than 60 trading partners on Aug. 7, with more to be determined.

The Yale Budget Lab estimates the average effective tariff rate is 18.3%, the highest since 1934.

Some of the proposed tariffs are as high as 50% for countries such as Brazil, which supplies most of the coffee consumed in the United States.

The Trump administration expects the new tariff levels to bring billions of dollars into the U.S. Treasury.

Much of that revenue has been absorbed by exporters, importers, and businesses since the Liberation Day announcement on April 2.

Many economists expect the tariff impacts will now start to trickle down the supply chain and into the prices paid by consumers.

It remains to be determined if the tariff experiment will result in a one-time inflationary shock to the economy or will be felt for longer periods.

How the Federal Reserve monitors inflation

Maximum employment and low inflation with price stability are the Federal Reserve's dual mandate from Congress.

The Fed uses interest rates as the benchmark tool to comply with its mandate.

Its goals create tension for the independent central bank’s task of executing monetary policy.

That’s because:

Higher interest rates lower inflation but increase job losses.
Lower interest rates decrease unemployment but increase inflation.

President Trump has been highly critical of Fed Chair Jerome Powell and the 12-member Federal Open Market Committee for keeping interest rates steady at 4.25 to 4.50% in part due to potential tariff inflation.

The president has been demanding interest rate cuts be slashed by 3 percentage points to accelerate his administration’s efforts to keep the U.S. economy out of stagflation or recession.

The CME Group’s widely respected FedWatch Tool puts the likelihood of a .25% Fed rate cut at 91.4% in September, with some Fed watchers estimating there might be one or even two additional cuts by the end of the year.

The last interest rate cut was in December 2024.

NY Fed report targets consumer expectations

The New York Fed’s Survey of Consumer Expectations contains information about how consumers expect overall inflation and prices for food, gas, housing, and education to act.

It also provides insight into Americans’ views about job prospects and earnings growth and their expectations about future spending and access to credit.

It is an internet-based survey of a rotating panel of approximately 1,200 household heads.

More Federal Reserve:

The main findings from the July 2025 survey are:

Inflation expectations in July increased at the one-year horizon to 3.1% from 3.0% and at the five-year horizon to 2.9% from 2.6% month over month. They remained steady at the three-year horizon at 3.0%.
Inflation expectations in July increased at the one-year horizon to 3.1% from 3.0% and at the five-year horizon to 2.9% from 2.6% month over month. They remained steady at the three-year horizon at 3.0%.
Home price growth expectations remained unchanged at 3.0%. This has been moving in a narrow range between 3.0% and 3.3% since August 2023.
The year-ahead expected change in food prices was unchanged at 5.5%.
One-year earnings growth expectations increased by 0.1 percentage point to 2.6% in July, remaining below the trailing 12-month average of 2.8%.
Unemployment expectations, or the mean probability that the U.S. unemployment rate will be higher one year from now, dropped 2.3 points to 37.4%, its lowest reading since January 2025.
The expected growth in household income was unchanged at 2.9% in July.