It’s early yet to know whether President Trump’s tariffs will push up prices, but the head of the Chicago Fed suggests that fears of inflation could be overstated. Instead, Austan Goolsbee finds that producers and importers are absorbing much of the cost of the tariffs, largely sparing the consumer from higher prices on imports. “Burden sharing,” Mr. Goolsbee calls it, noting that if the trend holds, in his view, the coast could soon be clear for interest rate cuts.

“The surprise has been that, so far at least, we’ve had three months of inflation data where there hasn’t been much inflation,” Mr. Goolsbee said in a parley at Milwaukee. “The impact of tariffs has not been what people feared.” His report is all the more newsworthy because, as he points out, the states in the Chicago Fed’s district are among the nation’s most manufacturing-intensive, putting businesses there on the front lines of tariff policy. 

Mr. Goolsbee also finds that among businesses facing tariffs, “there’s been less immediate pass-through than there was in 2018, for example, where it immediately went to the consumer right away.” He detects “a little bit of burden sharing,” defined as the splitting up of the cost of the levies. “One-third is going on the supplier, one-third on the producer, one-third to the consumer,” is how he puts it.

If that pattern holds, it could to a degree vindicate Mr. Trump’s use of tariffs as a policy tool. That’s especially true in light of the wave of criticism he received from mainstream economists who saw only downside to tariffs, and presumed that companies would pass the costs directly to consumers, making the levies a de facto tax. So, Mr. Goolsbee asks: “Is this all there is, or is there about to be something showing up in the inflation data?” 

This year, too, Mr. Goolsbee is a voting member of the Fed’s Open Market Committee — the body that, in the central bank’s byzantine setup, sets interest rate policy — so his views on the link between tariffs and inflation could prove influential. He contends that “if we do not see inflation resulting from these tariff increases, then, in my mind, we never left what I was calling the golden path” that the economy was on before the levies were set by Mr. Trump. 

That suggests the prospect of a green light for interest rate cuts: “If the dirt is out of the air, then I think we should proceed,” Mr. Goolsbee says. That kind of talk is likely music to the ears of Mr. Trump, who has been grousing about the Fed’s apparent reluctance to lower rates — in part because of concerns that tariffs will induce inflation. Mr. Trump has taken to mocking the Fed chairman, Jerome Powell, with the nickname “Too Late.”

In our view, it’s hard to begrudge the Fed for caution over incipient inflation — especially after failing in 2021 to nip in the bud the nascent surge of inflation that Mr. Powell and others dismissed as “transitory.” Plus, the dollar’s gold value has plunged to less than a 3,300th of an ounce, in a warning of larger inflationary pressures. If Mr. Goolsbee finds that tariffs are proving less inflationary than feared, Mr. Powell seems to have missed the memo.

On Capitol Hill today, Mr. Powell avers that “increases in tariffs this year are likely to push up prices and weigh on economic activity” and repeated his plan to wait on rate cuts. Economist Judy Shelton on X reports that Mr. Powell suggests that the Fed’s policy rate is now 25 to 50 basis points higher than a “neutral” rate that neither stimulates nor stifles growth. She reckons this difference marks the “deliberately restrictive impact” that the Fed “is imposing.”

Fed board members like Christopher Waller and Michelle Bowman have said they would endorse a cut at the Fed’s July meeting. Mr. Goolsbee, too, could be inclined to push his views on tariffs’ limited impact on inflation, even if in May he was urging the Fed to wait to “get some clarity.” That’s a reminder that the Fed has repeatedly shown that the financial future is a closed book, or, as screenwriter William Goldman was known to warn, “Nobody knows anything.”