The average tariff rate on U.S. imports jumped from 2.6% to 13% over the course of 2025, according to the Federal Reserve Bank of New York. On paper, that kind of increase should have pushed inflation higher. Instead, headline inflation actually eased from 2.9% year over year in December 2024 to 2.7% in December 2025. Core inflation, which excludes volatile food and energy prices, also slowed from 3.2% to 2.6%.
Did tariffs somehow stop being inflationary?
Not exactly. Although foreign exporters did not reduce prices enough to offset the tariffs, U.S. companies, concerned about losing market share, chose to absorb much of the impact, often sacrificing their profit margins to remain competitive rather than passing on the full increase to customers.
But that shield appears to be cracking.
December’s PCE report showed inflation picking up again, rising 0.4% month over month and 2.9% year over year. Core PCE also increased 0.4% on the month and 3% annually. Importantly, the acceleration was concentrated in core goods excluding food and energy, which climbed 0.4% month over month and 2% year over year. That suggests companies became more willing to pass tariff-related costs on to consumers in December.
Inflation expectations are also worth watching. One-year expectations stood at 3.1% in January, while three- and five-year expectations remained at 3%, leaving room for further upside if price pressures continue to build. It is also worth noting that risk assets, including BTCUSD, remain under pressure, as higher inflation could keep the Fed tighter for longer. The same applies to gold and silver prices.
What about the Supreme Court ruling declaring Trump’s tariffs illegal?
First, the decision concerned tariffs imposed under the International Emergency Economic Powers Act (IEEPA), which covered approximately 60% of the measures introduced. Other tariffs, such as those on steel, aluminum, copper (50%), automobiles and auto parts (25%), furniture (25%), and wood (10-25%), remain in effect.
Second, even without the IEEPA, the Trump administration has other legal tools to impose tariffs. In fact, this Saturday, a 15% tariff was introduced under Section 122 of the Trade Act of 1974. In addition, the U.S. president can invoke Sections 201, 301, 338, and 232, each with its own legal requirements.
What does this mean for investors?
If December’s rebound in PCE wasn’t just a one-off, the Fed may adopt a more cautious approach to rate cuts, which could put additional pressure on markets
