Nearly 1% inflation increase is estimated by Goldman Sachs due to Trump's proposed tariff hike.

• Trump announced on Truth Social on Monday that he planned to impose a 10% tariff on goods from China and a 25% levy for Canada and Mexico.
• According to Goldman Sachs calculations, the three countries in question contribute to 43% of U.S. goods imports, and the tariffs would result in approximately $300 billion in annual revenue.
• Whether Trump's proposed tariffs will be implemented at their full extent or if any exceptions will be made remains uncertain.

According to Goldman Sachs, the latest tariff proposal from President-elect Donald Trump is likely to increase inflation in the United States.

Trump announced on Truth Social on Monday that he planned to impose a 10% tariff on goods from China and a 25% duty for Canada and Mexico. Jan Hatzius, the chief economist at Goldman Sachs, stated in a note that these proposed levies would lead to a significant increase in consumer prices in the US.

According to Hatzius, if we apply our rule of thumb that a 1% increase in the effective tariff rate leads to a 0.1% increase in core PCE prices, we predict that the proposed tariff hikes would result in a 0.9% rise in core PCE prices.

The Federal Reserve prefers the core PCE, which excludes food and energy prices, as its preferred inflation indicator.

The Fed's rate cut calculations could be disrupted if there is a core PCE increase linked to tariffs, as predicted by economists surveyed by Dow Jones. The October PCE reading is due out on Wednesday, and it's expected to show a year-over-year increase of 2.8% for core, which is still above the Fed's target of 2%.

Expectations for Fed rate cuts in 2025 have been scaled back by traders, although it is uncertain whether this is due to election results or a robust U.S. economy. Fed Chair Jerome Powell has stated that the central bank will evaluate the influence of tariffs and other fiscal policy adjustments on inflation once the specifics are known.

It is uncertain whether the tariffs proposed by Trump will be implemented at the levels he suggested, or if any exceptions will be made. Trump's social media post stated that the tariffs were dependent on changes to immigration policy and drug enforcement, particularly fentanyl. Some of Trump's advisors and supporters have characterized the tariffs he proposed during the campaign as a bargaining position rather than a definitive policy.

It seems more likely that Canada and Mexico would avoid across-the-board tariffs than China, according to Hatzius.

According to Goldman Sachs calculations, the three countries in question contribute to 43% of U.S. goods imports, and the tariffs would result in approximately $300 billion in annual revenue.