“Industries in ‌which tariffs induced higher costs in 2025 also experienced greater labor productivity growth, which helped them mitigate those higher costs,” bank researchers wrote in a paper released on Wednesday.

That means that while firms may have confronted higher input costs due to the president’s tax increases, by getting more output out of their workforces they were able ​to hold off on passing on those costs. That in turn helped inflation, which has been above the Fed’s 2% target ​for half a decade, come in lower than it otherwise would have due to the taxes.

Altogether, the tariffs, ⁠which rose from an average level of 2.5% before Trump’s return to 10%, joined with healthy productivity rates, added 0.5 percentage point to the ​core level of the personal consumption expenditures price index, the authors found.

The analysts said firms facing strong tariff-related cost increases managed to keep output ​steady while cutting labor inputs, and “the reduction in hours contributed to greater labor productivity growth.”

The paper noted the amount of upward lift that the tariffs added to price pressures since 2025 means the blame for high inflation may need other culprits.

“Productivity gains thus strongly offset the increase in consumer prices induced by tariffs,” the economists ​wrote, noting “given labor productivity gains, inflation should have been closer to 2 percent” rather than the levels that prevailed over the last year.

“Other factors, ​whose effects on inflation may be less transient than those of tariffs, could have been significant contributors to inflation as well,” they wrote.

Other Fed research, however, has ‌contended that ⁠tariffs have been passed on strongly to consumers, with recent work from the New York Fed saying more inflation is yet to come from Trump's trade policy.

INFLATION DRIVERS

Over the last year and a half or so, Trump’s tariffs have played a starring role in the debate over inflation and how the Fed should manage this situation via monetary policy.

After price pressures surged due to COVID-19-related disruptions and expansive government support policies, inflation had been ​moving back to target as Trump ​returned to the White House ⁠at the start of 2025. His import tax increases became one of the key factors that started a resurgence of inflation, in the view of many Fed officials and private sector economists.

Over recent months, central bank ​officials have tied above-target levels of inflation to the ongoing impact of the tariffs even as they have ​expected the impact ⁠of the levies to fade, along with higher energy prices tied to the Iran war.

Also buoying inflation has been the build out of the nation’s tech infrastructure boom. The investment in artificial intelligence that has been driving tech spending is hoped by many to be a force that ultimately lowers inflation ⁠pressure at ​some point in the future.

The study’s authors said the inflation limiting productivity landscape may ​result from longer-running trends, or from firms that relied on more expensive foreign inputs being forced out of the market. The authors said it could also come down to firms ​investing more in equipment and production to reduce labor costs in the face of tariff-driven input-cost increases.