One-Sentence Summary: A Federal Reserve working paper finds that 2025 tariffs produced modest retail price increases but much larger spending cuts, with low-income households bearing the most regressive price burden and middle-income households leading precautionary shifts away from non-essential purchases. Assistance from Claude AI.
Key Takeaways:
- The study uses transaction-level data from more than 126,000 U.S. households and a linked tariff survey of more than 21,000 households.
- Retail price pass-through from the 2025 tariffs was partial, estimated at about 15 to 20 percent.
- Spending fell much more than prices rose: about 4 percent at the mean tariff-exposure increase.
- Non-essential purchases drove the spending and quantity declines, while essential categories were protected.
- Low-income households faced the highest price pass-through and the largest welfare cost as a share of income.
- The survey evidence points to precautionary reallocation and trade-down, not broad stockpiling, as the main behavioral mechanism.
- Middle-income households showed the clearest sentiment-driven cuts in non-essential spending because they had more discretionary room to adjust.
Article Summary: Sinem Hacıoğlu-Hoke and Leo Feler study how the broad 2025 U.S. tariff increases affected consumer prices, spending, quantities purchased, and household welfare. Using Numerator transaction records for 126,448 continuously observed households from January 2024 through December 2025, the authors link household purchases to tariff exposure at the four-digit Harmonized System level. Their exposure measure combines realized effective tariff rates with import penetration, allowing them to compare high- and low-exposure categories before and after the February 2025 tariff implementation. They also connect transaction records for 21,227 households to a tariff-sentiment survey fielded between April and June 2025.
The central finding is that tariffs raised prices modestly but reduced spending much more sharply. The authors estimate roughly 15 percent retail pass-through using realized tariff rates and about 20 percent using their import-weighted exposure measure. At the mean tariff-exposure increase, affected-category prices rose by about 1 to 2 percent, while real spending fell roughly 4 percent. Quantity declines closely tracked spending declines, suggesting that households were not merely paying more for the same basket.
The contraction was concentrated in non-essential goods, not in essentials such as groceries, household products, and health and beauty items. The authors find little support for a stockpiling explanation: the spending decline persisted after the early post-tariff months, and households that said they intended to stock up did not account for the aggregate drop.
The burden was strongly unequal. Low-income households faced the highest price pass-through, with tariff exposure producing larger price increases for their baskets than for middle- or high-income households. Welfare estimates based on deadweight loss and a Sato-Vartia cost-of-living index show low-income households losing about 0.18 to 0.19 percent of income, compared with about 0.02 percent for high-income households. In dollar terms, price-anchored monthly welfare losses were similar across groups, but they were far heavier relative to low incomes.
The survey evidence explains why spending fell more than prices rose. Households worried about tariffs shifted their budgets toward essentials and traded down to cheaper varieties within affected categories. Middle-income households drove much of the precautionary reallocation away from non-essentials, apparently because they had enough discretionary slack to cut. Low-income households had less room to restructure spending and instead absorbed higher prices on continuing purchases. Stated intentions to reduce spending predicted actual lower spending on exposed goods, but without a matching quantity decline, consistent with trade-down rather than simple deprivation. Stated substitution and delay plans were largely unconnected to revealed behavior. The paper concludes that the 2025 tariffs worked through two channels: regressive price incidence for poorer households and precautionary basket reallocation among households with discretionary flexibility.
Hacioglu-Hoke, Sinem, and Leo Feler. “Paying More and Buying Less: 2025 Tariffs and U.S. Household Spending.” Finance and Economics Discussion Series 2026-035, Board of Governors of the Federal Reserve System, 21 May 2026, doi.org/10.17016/FEDS.2026.035