• Federal Reserve Governor Hammack expects recent tariffs to push inflation higher through early next year
  • The effective U.S. tariff rate has reached 17.9%, estimated to increase consumer prices by 1.7% this year
  • Businesses across sectors plan to continue raising prices into 2026 in response to cost pressures

Federal Reserve Governor Hammack has indicated that the recent wave of U.S. tariffs is expected to keep inflation elevated through early next year, with effects likely lingering into 2026 before potentially easing. This view reflects the emerging consensus among Fed officials, who see trade policy as a persistent inflationary force in the medium term.

The effective U.S. tariff rate has climbed to 17.9%, according to recent estimates, which is projected to increase consumer prices by approximately 1.7% this year alone. The price impact appears broad-based, with particularly pronounced effects expected in sectors like apparel and leather goods, where prices could run 11-12% higher than they would have without the tariffs.

"We're seeing businesses across the board planning to maintain price increases into 2026," said one analyst familiar with recent Fed surveys. "It's not just about covering tariff costs—many see an opportunity to widen margins in this environment."

The September policy meeting minutes confirmed that Fed officials view the tariff increases as contributing meaningfully to elevated inflation, with expectations that these effects will be fully realized by the end of 2026. Year-over-year CPI inflation is now projected to peak around 3.5% by the fourth quarter of 2025 before gradually declining to approximately 2.8% by the end of 2026.

Hammack's comments reflect the Fed's cautious approach to monetary policy in this environment. With inflation expected to remain above the central bank's 2% target through 2026, officials are proceeding carefully with any potential interest rate cuts to avoid reigniting price pressures.

Efforts to reach Hammack's office for additional comment were unsuccessful, though people familiar with the matter confirm his views align with the broader consensus developing within the Federal Reserve system.

The persistent inflationary pressure comes amid ongoing protectionist trade policies that echo measures from the previous administration. With the effective tariff rate at its highest level since the 1930s, consumers face reduced purchasing power, with estimates suggesting the average household income could decline by around $2,400 due to higher prices.

While some Fed officials have argued the tariff effects might be overstated, the current consensus—drawing from both historical trade episodes and current business surveys—supports expectations of meaningful, if not extreme, inflationary impact. Most projections now see inflation gradually returning to the 2% target by 2027, assuming no further escalation in trade restrictions.

Correction: An earlier version of this article misstated the projected timeline for inflation's return to target. The current consensus expects a gradual return to 2% by 2027, not 2026.