Finance and Economics Discussion Series (FEDS)
August 2026 (Revised August 2026)
Paying More and Buying Less: 2025 Tariffs and U.S. Household Spending
Sinem Hacıoğlu Hoke and Leo Feler
Abstract:
We estimate the effects of the 2025 U.S. tariffs on households using transaction-level data linked to tariff exposure and a tariff sentiment survey. Using the realized tariff rate, we find retail price pass-through of about 0.15, while our benchmark tariff-exposure measure blends the tariff rate with import penetration and yields a larger price coefficient of 0.20. Low-income households bear a disproportionate welfare burden through regressive pass-through. Aggregate spending on affected goods falls about three times as much as prices rise. Quantity declines drive the contraction in spending and are concentrated entirely in non-essential categories, where households have the flexibility to cut back. The real income lost to tariffs explains at most a third of this contraction, leaving the greater part behavioral. We link stated intentions in the survey to households’ spending, and identify the mechanism as a precautionary response driven by pessimism about the economic outlook. More pessimistic households reallocate their baskets toward essentials and the cut in non-essential spending behind this shift is concentrated among middle-income households. Within the essential categories they expect tariffs to affect, worried households at every income level trade down to cheaper varieties.
Keywords: Tariffs, Pass-through, Prices, Household Spending, Welfare
DOI: https://doi.org/10.17016/FEDS.2026.035r1
PDF: Full Paper
Original Paper: Accessible materials (.zip) | PDF
Disclaimer: The economic research that is linked from this page represents the views of the authors and does not indicate concurrence either by other members of the Board's staff or by the Board of Governors. The economic research and their conclusions are often preliminary and are circulated to stimulate discussion and critical comment. The Board values having a staff that conducts research on a wide range of economic topics and that explores a diverse array of perspectives on those topics. The resulting conversations in academia, the economic policy community, and the broader public are important to sharpening our collective thinking.