The Federal Reserve Bank of New York published a research brief on July 8 through its Liberty Street Economics platform detailing how the domestic corporate price-adjustment cycle for tariff-related costs is operating on a far longer timeline than standard economic models predict. The data reveals that 44% of industrial and manufacturing firms and 47% of service-sector firms are still planning additional price increases to offset tariff-induced cost pressures, despite the initial implementation of elevated import duties sitting more than a year in the past. The findings carry direct implications for the Federal Reserve’s inflation outlook and the trajectory of monetary policy through the remainder of 2026.
Key Takeaways
- 44% of manufacturing firms and 47% of service firms surveyed by the NY Fed are planning additional price increases to offset tariff-related cost pressures.
- Among firms still planning hikes, 40% of importing manufacturers and 30% of service firms intend to execute those increases within the next six months.
- A separate cohort of firms — 7% of manufacturers and 16% of service firms — plans to delay tariff-related price adjustments beyond the six-month horizon.
- The NY Fed’s February 2026 regional business survey found that firms expected to raise prices at a pace of just over 4% in 2026, a deceleration from 2025 but still above 2024 levels.
- The Federal Reserve’s preferred inflation gauge, the Personal Consumption Expenditures price index, climbed 4.1% in the 12 months through May 2026, the first reading above 4% in three years.
Why Is the Tariff Pass-Through Taking So Long?
The conventional expectation in trade economics is that tariffs function as a one-time price-level adjustment: duties go up, import prices rise, and the shock dissipates relatively quickly as the new cost structure is absorbed. The NY Fed’s data contradicts that assumption. The research shows that the domestic corporate price-adjustment cycle is more gradual and back-loaded than traditional models predict, with firms spreading their tariff-related price increases across an extended horizon rather than implementing them in a single move.
This pattern aligns with earlier NY Fed findings. In a June 2025 Liberty Street Economics post, researchers Jaison R. Abel, Richard Deitz, Sebastian Heise, Ben Hyman, and Nick Montalbano found that while over half of both manufacturers and service firms raised prices within a month of experiencing tariff-related cost increases, a meaningful share took one to three months or longer. The qualitative research published by the NY Fed in partnership with the Atlanta and Cleveland Federal Reserve Banks revealed that firms balance competing objectives when adjusting prices — monitoring demand conditions, tracking competitors’ behavior, and calibrating the pace of increases to avoid alienating customers.
The result is a slow-release pricing dynamic rather than a single shock. Firms that absorbed margin compression in the initial months following the 2025 tariff escalation are now reaching the point where they can no longer delay passing costs forward. The 44% of manufacturers and 47% of service firms still planning price hikes represent the tail end of a pass-through cycle that began more than a year ago but has not yet fully worked through the domestic price structure.
What Does the Data Show About Timing?
The timing data in the NY Fed’s research creates a cascading picture of price-adjustment waves. Among the firms still planning tariff-related price increases, 40% of importing manufacturers and 30% of service firms intend to execute those hikes within the next six months. That places the next round of tariff-driven price adjustments squarely in the second half of 2026, overlapping with the period in which the Federal Reserve is evaluating whether to raise rates again.
A distinct cohort — 16% of service firms and 7% of manufacturers — intends to delay adjustments beyond the six-month horizon entirely. For those firms, tariff-related price increases may not reach consumers until early 2027, extending the inflationary tail of the 2025 tariff escalation well beyond what most forecasting models incorporate.
The asymmetry between manufacturing and services is notable. Service firms are more likely to be planning future price increases (47% versus 44%) and more likely to be delaying those increases beyond six months (16% versus 7%). That pattern carries particular weight for inflation dynamics because services represent approximately 62% of the core PCE basket. If services-side tariff pass-through is both larger and more delayed than manufacturing-side pass-through, the inflationary impact on the Fed’s preferred measure will be more persistent than goods-price data alone would suggest.
How Does This Fit Into the Broader Tariff Picture?
The NY Fed’s research arrives in the context of a tariff regime that reshaped U.S. import costs throughout 2025. The average statutory tariff rate rose from 2.6% at the start of 2025 to approximately 13% by year-end, according to the NY Fed’s February 2026 analysis. Realized tariff rates — what importers actually paid — peaked at 10.9% by October 2025 before settling at 9.4% by December, according to the Dallas Fed. The Budget Lab at Yale calculated that as of April 2026, the pre-substitution average effective tariff rate stood at approximately 11.8%, the highest since the early 1940s.
The NY Fed’s February 2026 study on who pays for U.S. tariffs found that nearly 90% of the economic burden fell on U.S. firms and consumers. That finding established the direction of cost flow; the July research brief adds the temporal dimension, showing that the downstream pricing response to that burden is still unfolding months after the initial cost shock.
The NY Fed’s March 2026 regional business survey added another layer to this picture. Manufacturing firms reported that goods and materials costs climbed by 8% on average in 2025, while service firms saw a more modest but still significant 5.5% increase. Firms identified tariffed inputs including aluminum, steel, equipment, electrical supplies, auto parts, coffee, and cocoa as primary cost drivers. Despite these elevated cost pressures, firms’ median year-ahead inflation expectations fell to 3.0% in early 2026, down from 4.0% among service firms and 3.5% among manufacturers a year earlier. That moderation in expectations, even as firms plan continued price hikes, suggests that businesses view the tariff-related cost increases as a structural but finite adjustment rather than the beginning of a sustained inflationary spiral.
What Does This Mean for Monetary Policy?
The Federal Reserve held its policy rate at 3.50%-3.75% at the June 16-17 FOMC meeting, with nine officials penciling in at least one additional rate hike before the end of 2026. The NY Fed’s own DSGE model forecast, updated in June 2026, projected that inflation forecasts are higher in 2026 than predicted in March. The Dallas Fed estimated that tariff collections increased March 2026 12-month core PCE inflation by approximately 0.80 percentage points, and that core inflation absent tariff effects on relative prices would be 2.3% — near the Fed’s 2% target.
The pipeline dynamics documented in the NY Fed’s July research brief complicate the disinflation narrative. If a substantial share of tariff-related price adjustments is still being implemented or has been deferred to the next six to twelve months, then the core services inflation readings that the Fed monitors most closely may remain elevated through at least the first quarter of 2027. For rate-setters, the distinction between a one-time price-level adjustment and a prolonged pass-through cycle determines whether tariff-driven inflation should be “looked through” or treated as a persistent pressure requiring a policy response.
The NY Fed’s tariff pass-through data reveals that corporate pricing behavior operates on a timeline that conventional models underestimate, and the staggered nature of those adjustments means the inflationary tail of the 2025 tariff escalation is likely to extend into the next fiscal year.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Readers should consult a qualified financial advisor before making investment decisions.
FAQs
What did the NY Fed’s July 2026 research brief find? The research found that 44% of manufacturing firms and 47% of service firms are still planning additional price increases to offset tariff-related cost pressures, despite the initial tariff implementation occurring more than a year ago.
How quickly are firms planning to raise prices? Among firms still planning hikes, 40% of importing manufacturers and 30% of service firms intend to execute increases within the next six months, while 7% of manufacturers and 16% of service firms plan to delay beyond six months.
How much did U.S. tariff rates increase in 2025? The average statutory tariff rate rose from 2.6% at the start of 2025 to approximately 13% by year-end, while realized tariff rates peaked at 10.9% by October 2025.
Who bears the cost of the tariffs? The NY Fed’s February 2026 analysis found that nearly 90% of the economic burden of the 2025 tariff increases fell on U.S. firms and consumers rather than foreign exporters.
Why are service firms more likely to delay price hikes? Service firms face different competitive dynamics and contract structures than manufacturers, and 16% of service firms plan to delay tariff-related adjustments beyond six months compared to 7% of manufacturers, suggesting longer adjustment cycles in the services sector.
What is the current federal funds rate? The Federal Reserve held its policy rate at 3.50%-3.75% at the June 16-17 FOMC meeting, with nine officials projecting at least one additional rate hike before the end of 2026.
How much are tariffs contributing to inflation? The Dallas Fed estimated that tariff collections increased March 2026 12-month core PCE inflation by approximately 0.80 percentage points. Absent tariff effects, core inflation would be near 2.3%.
