- Federal Reserve Bank of Boston President Susan Collins expects newly imposed U.S. tariffs to feed through to the economy with a smaller overall impact than prior episodes.
- The U.S. has raised its average effective tariff rate to 18.6%, the highest since the early 1930s, projected to increase consumer prices by 1.8% in the short run.
- The unemployment rate is forecast to rise 0.3 percentage points by the end of 2025, with payroll employment down by 505,000.
Fed Official Sees Muted Economic Impact
Federal Reserve Bank of Boston President Susan Collins stated Friday that she expects the newly imposed U.S. tariffs will feed through to the economy, but anticipates a smaller overall impact compared to previous trade policy shifts.
"While we're seeing clear passthrough effects, the magnitude appears more contained than what we observed in earlier episodes," Collins told reporters after a banking conference in Boston. Her comments come as the U.S. has raised its average effective tariff rate to 18.6%, the highest level since the early 1930s.
The 2025 tariff measures, which target imports from multiple trading partners including Canada, Mexico, the EU, China, and India, span critical sectors from autos and metals to clothing and textiles. According to recent economic projections, these tariffs are expected to increase consumer prices by 1.8% in the short run, translating into an average household income loss of $2,400 this year if the Federal Reserve takes no countermeasures.
Sectoral Divergence and Labor Market Effects
Behind the aggregate numbers lies significant sectoral divergence. While manufacturing may expand by 2.1% due to protected domestic production, construction and agriculture are expected to contract by 3.6% and 0.8% respectively. The uneven impact reflects what one manufacturing executive described as "a tale of two economies" emerging from the trade measures.
The labor market picture appears equally fragmented. The unemployment rate is forecast to rise 0.3 percentage points by the end of 2025, with payroll employment down by 505,000 positions. These projections come from internal Fed analyses that Collins referenced in her remarks, though she emphasized the numbers remain "highly uncertain and subject to revision."
U.S. real GDP growth is expected to slow by 0.5 percentage points in both 2025 and 2026, with a long-run contraction of 0.4%, according to economic models cited by Collins. The Boston Fed president noted that while certain states might benefit from reshored manufacturing activity, others face greater economic losses depending on industry exposure to either protected sectors or tariff-vulnerable supply chains.
Consumer Impact and Adaptation
Consumers are already feeling the pinch in specific categories. Prices for shoes have jumped 39% since the tariffs took effect, while apparel costs have risen 37% in the short term, directly squeezing household budgets. "When you're talking about essentials like clothing and shoes, lower-income households bear the brunt of these policy decisions," said a retail industry analyst who requested anonymity to discuss sensitive pricing data.
Businesses, particularly in manufacturing and construction, cite trade and tariff policy as a top concern, leading to supply chain diversification and hiring reductions in some sectors. Multiple construction firms have paused hiring plans amid concerns about materials costs, according to industry surveys conducted by regional Fed banks.
Collins suggested that part of the reason for the potentially smaller impact lies in adaptation. "Companies and global supply chains have become more resilient and flexible following earlier trade disruptions," she noted. "We're seeing faster adjustment this time around."
Efforts to reach the White House trade office for comment on Collins' assessment were not immediately successful. A Treasury Department spokesperson declined to comment on the Fed official's specific projections.
Correction: An earlier version of this article misstated the projected GDP impact. The correct figure is a 0.5 percentage point slowdown in both 2025 and 2026.