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Report
Effects of Tariff Uncertainty on the Outlook of Small and Medium-sized Businesses
A large body of research demonstrates that uncertainty affects many dimensions of firms’ decisions, from investment and hiring to pricing and profitability. To gain a better understanding of how uncertainty induced by shifting trade policy shapes the behavior of small and medium-sized businesses (SMBs) the authors surveyed decision-makers at SMBs. The survey, administered by Morning Consult, was conducted in three waves: in December 2024, February 2025, and late April 2025. Each wave contained a nationally representative sample of about 600 SMBs.
Report
Who Will Pay for Tariffs? Businesses’ Expectations about Costs and Prices
Amid evolving global trade policy and rising tariff uncertainty, understanding how small and medium-sized businesses (SMBs) form expectations about future costs and adjust their pricing is critical for assessing how the recently imposed tariffs on US imports could impact consumer prices. To that end, we analyze several waves of a survey of owners and other decision-makers at a nationally representative sample of US SMBs, defined as companies that employ 500 or fewer workers. We focus on waves conducted during the period of December 2024 to August 2025.
Report
Why Have Inflation Expectations Surged Recently? A Historical Perspective
How much of the most recent surge in inflation expectations, which began in March 2025, has been the result of the usual effect of abnormal price movements? How much is left unexplained and may signal a potential de-anchoring of inflation expectations? How do the most recent and the pandemic-era surges in expectations compare with the two surges in the Great Inflation episode of the 1970s? This brief addresses those questions using data on inflation expectations from the University of Michigan Survey of Consumers and a simple regression model in which households form their inflation ...
Report
How Much Did Labor Productivity Gains Offset the Inflationary Impact of the 2025 Tariffs?
In 2025, the average realized tariff on U.S. imports rose from about 2.5 percent to about 10 percent. The resulting increase in U.S. firms’ input costs had the potential to raise inflation significantly and explain why inflation remained significantly above the Federal Reserve’s 2 percent target last year. On the other hand, as the tariffs took hold, U.S. workers’ productivity grew, which could have helped companies reduce their costs and thereby mitigate inflationary pressures from the tariffs. To study the extent to which productivity gains may have offset the tariff-driven cost ...
Report
Is Post-pandemic Wage Growth Fueling Inflation?
Inflation in the United States surged after the onset of the COVID-19 pandemic, reaching levels not seen in four decades. Supply chain disruptions, extraordinary fiscal support for households, labor market shortages, and lockdowns and other public health measures contributed to this surge, which first manifested as goods price inflation. Nominal wage growth also increased significantly and has remained at levels above pre-pandemic averages, raising concerns that it could trigger a wage-price spiral and extend the current episode of high inflation. Indeed, the increase in wage growth has ...
Report
Small and Medium-sized Businesses’ Expectations Concerning Tariffs, Costs, and Prices
Small and medium-sized businesses (SMBs) constitute an integral part of the US economy, driving job creation and economic growth. They account for approximately half of private-sector employment and play a crucial role in fostering competition, all the while supporting local communities. This brief uses a new survey of SMB decision-makers to study how US tariff changes could affect businesses’ costs and prices.
Working Paper
The Future in Today’s Prices: Evidence from a Survey of U.S. Firms
Do firms adjust prices to realized costs, expected costs, or both? We address this question using a new survey of U.S. businesses that separately measures realized cost changes since the last price adjustment and expected cost changes over the subsequent year, including portions attributable to 2025 trade policies. Using perceived tariff exposure as an instrument, we identify the causal effects of realized and expected costs on prices. Reset prices incorporate almost 70 percent of current costs and nearly 45 percent of expected costs over the next year. The importance of these channels varies ...
Working Paper
Delphic and Odyssean Monetary Policy Shocks: Evidence from the Euro Area
What drives the strong reaction of financial markets to central bank communication on the days of policy decisions? We highlight the role of two factors that we identify from high-frequency monetary surprises: news on future macroeconomic conditions (Delphic shocks) and news on future monetary policy shocks (Odyssean shocks). These two shocks move the yield curve in the same direction but have opposite effects on financial conditions and macroeconomic expectations. A drop in future interest rates that is associated with a negative Delphic (Odyssean) shock is perceived as being contractionary ...
Working Paper
The Optimal Inflation Target and the Natural Rate of Interest
We study how changes in the steady-state real interest rate affect the optimal inflation target in a New Keynesian DSGE model with trend inflation and a lower bound on the nominal interest rate. In this setup, a lower steady-state real interest rate increases the probability of hitting the lower bound. That effect can be counteracted by an increase in the inflation target, but the resulting higher steady-state inflation has a welfare cost in and of itself. We use an estimated DSGE model to quantify that tradeoff and determine the implied optimal inflation target, conditional on the monetary ...
Working Paper
No Firm Is an Island? How Industry Conditions Shape Firms’ Expectations
We study how firms’ expectations and actions are affected by both aggregate and industry-specific conditions using a survey of French manufacturing firms. We document an important new stylized fact. In response to industry-level shocks that have no aggregate effects, firms’ aggregate expectations respond persistently. This is consistent with “island” models in which firms use the local prices they observe to make inferences about broader aggregate conditions. We then assess the extent to which these patterns are related to observable characteristics of firms and the industries in ...