The bitter clash over global tariffs has exposed more than a deepening U.S. trade policy dispute from Main Street to Wall Street.

It has also revealed a constitutional and economic stress test of the Federal Reserve‘s independence from political and partisan influence.

As the Fed weighs how trade-driven price pressures could complicate sticky inflationand its path on interest rates, a striking new study from the Federal Reserve Bank of New York shows that the costs of high tariffs tend to land squarely — 90% — on American consumers and businesses.

The White House quickly blasted that study as false, ratcheting up disparagement of the New York Fed’s data-driven results and prompting calls from a top Trump aide for unprecedented disciplinary action against the economists behind it, Bloomberg reported. 

This percolated the rising tensions between Fed independence and the Trump administration’s consistent efforts to influence monetary policyand extend executive authority into the operations of the central bank.

“This is just another step to try to compromise the Fed’s independence. Over the past year we’ve seen multiple attempts,” Federal Reserve Bank of Minneapolis President Neel Kashkari said in a Feb. 19 Bloomberg report.

Then the Supreme Court, in a stinging legal rebuke, ruled Feb. 20 that President Donald Trump’s tariffs were illegal, prompting critical backlash from the president amid his vows to continue to collect tens of billions of dollars from companies importing foreign goods and services.

The result? A rare and historical convergence of monetary independence, economic evidence, and constitutional limits hanging over inflation and the Fed’s credibility.

Federal Reserve Bank of New York via FRED®

New York Fed study centers on costs of tariffs

Among the authors of the New York Fed’s tariff study were a top economist in its research division and a Columbia University professor who have collaborated together on several pieces of research on international prices and tariff impacts.

“In sum, U.S. firms and consumers continue to bear the bulk of the economic burden of the high tariffs imposed in 2025,’’ the study said. 

The New York Fed’s findings on the high costs of U.S. tariffs were similar to the conclusions made by other researchers.

  • Harvard University’s Gita Gopinath and Brent Neiman of the University of Chicago, in a paper posted by the National Bureau of Economic Research, found “tariff pass-through to U.S. import prices is almost 100%, so the United States is bearing a large share of the costs.”
  • The U.S. Congressional Budget Office also published estimates of the impact of tariffs showing 30% of the 2025 tariffs would be absorbed by businesses and 70% passed on to consumers.
  • Another study, from researchers at Germany’s Kiel Institute, said “American importers and consumers bear nearly the entire cost,’’ of the 2025 tariffs.

Hassett blasts New York Fed tariff study

National Economic Council Director Kevin Hassett said the New York Fed study “is an embarrassment” and the people associated with it should be “disciplined.”

“What they’ve done is they put out a conclusion which has created a lot of news that’s highly partisan, based on analysis that wouldn’t be accepted in a first semester econ class,” Hassett said Feb. 18 on CNBC, adding that the research was “shoddy.”

He also said American consumers will be made better off by tariffs in the long run.

Kashkari defends independent monetary policy

Kashkari said the role of the research departments at the 12 regional Fed banks was central to how the institution operates.

Hassett’s remarks that the New York Fed research staff  “be disciplined” for its research on tariffs was just the latest move by the Trump Administration to undermine the independence of the central bank, Kashkari said.

  • In addition to demanding interest rates be slashed to 1% or lower, Trump has tried to fire Fed Governor Lisa Cook over unsubstantiated claims of mortgage fraud. During her appeal to the Supreme Court, several justices expressed concern if the president had the legal authority to do so. A ruling is expected in the next few months.
  • The Department of Justice in late December opened a criminal probe into Fed Chair Jerome Powell’s testimony to Congress on the $2.5 billion cost of renovations of the central bank’s renovations.
  • Both unprecedented moves caused tremendous uproars and barbed criticisms from economists, market analysts and politicians from both sides of the aisle. One GOP senator has pledged to stall nomination hearings for Kevin Warsh, Trump’s nominee to replace Powell as chair, until the DOJ probe is dropped completely.

The White House’s latest dispute on the tariff study “is really about monetary policy,’’ Kashkari said. “We are doing our very best to make the best assessment of the economy based on data and analysis.” 

Long-term impact of loss of Fed independence

Melissa Brown, managing director of investment decision research at SimCorp, told TheStreet that their research on the “potential of the Fed losing its independence suggests this would not be good for U.S. equity and bond markets, especially if the Federal Funds Rate were to be cut dramatically.”

“While it might help boost the U.S. economy in the short term,” Brown said, the longer-term implications are negative.

  • Inflation could come roaring back, eventually driving long rates higher.
  • Capital flight from the United States might occur, despite the higher rates, as U.S. Treasuries are no longer viewed as the safe-haven asset.
  • A lower U.S. dollar may drive gains in other currencies, such as the Euro, CHF, or JPY, that could be seen as providing safer havens.
  • Equity market declines might emerge across most sectors, as investors withdraw to invest elsewhere and consumers slow spending because of higher inflation.
  • A widening of credit spreads could hurt high-yield and even investment-grade bonds. 

“This is not an exhaustive list of implications, but is a good starting point,’’ Brown said.

“The role of the Fed will change.“

Economists and traders alike have long cautioned that political meddling in monetary policy risks extensive economic harm, erodes the central bank’s credibility, and leads to higher inflation.

Ben Fulton, CEO at WEBs Investments, told TheStreet that he is “quite confident that the Fed will remain firmly independent.”

Related: Trump hikes new tariffs to 15%

But he added a caveat.

“I am also quite confident that today’s media might question the independence due to President Trump selecting the replacement for Chairman Powell. We should never confuse selection with independence,’’ Fulton said. 

“The role of the Fed will change, because it needs to change, and it will be more aligned with the current administration. This is nothing new, yet I am certain we will hear about the unfairness, which it is not,’’ Fulton said.

How the Fed manages interest rates 

The Fed’s dual congressional mandate requires it to price stability inflation and full employment growth via interest rates.

The two goals often conflict, operate on different timelines and are influenced by unpredictable global events. 

  • Lower interest rates support hiring but can fuel inflation.
  • Higher rates cool prices but can weaken the job market.

The Federal Open Market Committee voted 10-2 to hold interest rates steady at 3.50% to 3.75% in January on the benchmark Federal Funds Rate after three consecutive quarter-point cuts in its last three meetings of 2025.

The Federal Funds Rate guides interest rates for investors and consumers on auto and student loans, home-equity loans, and credit cards.

For consumers, a delayed rate cut could mean higher borrowing costs that remain in place longer than expected.

Supreme Court’s tariff ruling impact on markets

Markets have been resilient to changing tariff policy, government shutdowns, and Fed Chair pressures over the past year, Robert Conzo, CEO & Managing Director at The Wealth Alliance, told TheStreet.

The New York Fed’s tariff study “reinforces the Fed’s independence and signals that its economic assessments are grounded in data rather than political pressure.”

More Federal Reserve:

  • Warsh nomination stirs Fed independence fears on Wall Street

This is evident in recent times, Conzo said, due to Powell holding off on aggressive interest-rate cuts in light of continued pressure from the Trump administration.

“After the Supreme Court ruled that tariffs imposed under IEEPA were illegal, the U.S. government may have to refund an estimated $168 billion. There has been $259 billion in tariff revenue collected so far since tariffs were imposed last April (per CNBC),’’ Conzo said.

The Trump administration immediately took measures to impose alternative tariffs, announcing a 10% global tariff on Feb. 20 and then raising it to 15% on Feb. 21.

“This raises the question — will the new tariff policy replace the prior policy, and result in a muted overall effect? While the U.S. has experienced moderating inflation, we believe it will be range-bound for the near future,’’ Conzo said.

Given the backdrop of strong economic data, earnings strength, and market resilience, Conzo said, “We believe further rate reductions will be on hold for the first half of 2026.”

The CME Group FedWatch tool projects a a 45.6% chance of a quarter-point cut at the June 17 FOMC meeting and a 45.9% chance of a quarter-point cut in the Federal Funds Rate at the July 29 FOMC meeting.

Lasting impact of Trump’s tariffs on the Fed

The tariff fight may prove less about trade and more about guardrails.

If federal courts constrain executive power and the data continue to show inflationary spillovers from tariffs, the Fed will be left to do what it was designed to do: make unpopular monetary-policy decisions unrestrained by politics.

That, and not the next interest-rate cut, could become the most consequential market variable of all.

Related: Fed official signals surprise rate-cut shift