Tom Barkin, president of the Richmond Fed, predicts that consumers will face price increases due to Trump tariffs.

• At the CNBC CFO Council Summit in Washington, D.C. on Wednesday, Richmond Fed President Tom Barkin stated that consumers are now pushing back against the rising prices caused by inflation, supply chain issues, and the pandemic.
• In order to retain customers and gain market share, many companies have lowered prices or increased discounts.
• The potential for more price increases is imminent due to pressure from potential Trump administration tariffs, according to Barkin, who believes that the barrier to increasing prices has been reduced historically.

Tom Barkin, CEO and President of the Federal Reserve Bank of Richmond, predicts that new tariffs from President-elect Trump could lead to another round of price increases, which may be more acceptable to consumers after years of inflation.

Despite the prolonged inflation caused by pandemic-related shortages and supply chain problems, consumers remained resilient and continued to spend. However, when consumer price fatigue reached a breaking point, companies such as , and announced plans to lower prices on groceries and goods, in an effort to keep consumers' wallets open.

"According to Barkin, consumers began to push back in May, and their frustration grew throughout the summer, as they were unable to cope with the high prices."

Recent company earnings call commentary reflects the change in consumer behavior, as they now have the energy to push back on pricing despite supply chain challenges and shortages.

"Companies that appear to be sustaining growth are those that have reduced prices or offered promotions, as consumers shift from premium beef to chicken and switch from traditional mass market grocers to large retailers like Walmart," Barkin stated. "Consumers are disillusioned and are downgrading."

Impact of potential Trump tariffs on prices

The threat of proposed tariffs from the Trump administration has many companies, retail trade groups and industry analysts warning that those moves could lead to higher prices on a wide range of purchases. For instance, Walmart CFO John David Rainey told CNBC last month that the retailer could have to raise prices on some items if President-elect Trump's proposed tariffs take effect. "Our model is everyday low prices. But there probably will be cases where prices will go up for consumers," Rainey stated.

Barkin stated that he is concentrating on the altered consumer relationship with price increases in comparison to the initial Trump presidency, as the possibility of higher prices due to Trump tariffs looms.

Barkin stated that if one looks ahead a year or two and envisions cost increases in industries due to commodity supply constraints or tariffs, the threshold for raising prices has decreased compared to five years ago.

In 2018 and 2019, Barkin met with companies and inquired about their plans to pass on Trump's tariff-driven cost increases to consumers. Many responded by stating that they would attempt to do so where possible, but there was no way they could increase prices at Home Depot, as it would not be accepted.

Lowe's CFO Brandon Sink stated on a recent earnings call that tariffs may increase product costs, but the timing and specifics are still uncertain.

"Barkin stated that the barrier to entry for that was lower than before, as people had recently experienced raising prices and would have a higher acceptance level due to their acceptance of price increases."

On Wednesday, Trump announced that Peter Navarro will serve as "Senior Counselor for Trade and Manufacturing" in his next White House term, tasked with helping to "successfully advance and communicate the Trump Manufacturing, Tariff, and Trade Agendas," Trump wrote in a pair of Truth Social posts revealing the pick. Navarro was previously a top trade aide for Trump during his first term and a major proponent of tariffs.

According to Barkin, tariffs increase the cost of goods, which in turn increases prices, resulting in inflation.

He stated that while inflation is not the same as a specific product's price increase, a tariff can create inflationary pressure, and its effects would depend on consumer, business, and Fed responses.

Recent polling by the Richmond Fed indicates that CFOs and businesses are more optimistic about future growth, despite uncertainty about certain policies, such as tariffs.

"Barkin stated that the uncertainty surrounding the 60% tariff on China makes it difficult to predict how it will impact the economy and how monetary policy should respond."