The conclusion goes against the conventional wisdom on how import taxes affect prices and comes as President Donald Trump’s tariffs have stirred a growing backlash among Americans who are angry about higher food, utility and insurance costs.

But if the study’s finding are correct, Trump may eventually be able to point to better inflation numbers, assuming he can stomach a weaker economy and labor market.

In a working paper published on Thursday, San Francisco Fed researchers Régis Barnichon and Aayush Singh said higher tariffs lead to reduced economic activity, higher unemployment and lower inflation in the short term.

“The inflation response goes against the predictions of standard models, whereby CPI inflation should go up in response to higher tariffs,” they wrote. “Instead, tariff shocks appear to act as aggregate demand shocks—moving inflation and unemployment in the same directions.”

One possible explanation is that tariffs create uncertainty that hits consumers’ and investors’ confidence, depressing economic activity and putting downward pressure on inflation, according to the study.

Alternatively, tariffs could trigger a drop in asset prices that also weigh on demand, resulting in higher unemployment and lower inflation.

“We find evidence in support of both channels: in response to higher tariffs, stock prices decline and stock market volatility increases,” Barnichon and Singh wrote.

Before World War II, they found that a permanent 4-percentage-point increase in the tariff rate reduced inflation by 2 percentage points and raised unemployment by about 1 percentage point.

After the war, the estimates are more uncertain but still point to tariff hikes reducing inflation and worsening unemployment, they added.

Trump tariffs

Administration officials have long maintained that Trump’s tariffs aren’t stoking inflation, even though the consumer price index has crept higher since he launched his trade war in April.

But on Friday, Trump announced that he’s scrapping tariffs on beef, coffee, and a range of other commodities, after voter anger about worsening affordability delivered stunning losses to Republicans during off-year elections this month.

Meanwhile, Federal Reserve Chairman Jerome Powell and other policymakers believe tariffs will likely produce a one-time boost to inflation, which eventually will resume its cooling trajectory.

Despite fears of a recession, the economy has remained resilient amid Trump’s tariffs, though the recent government shutdown has put key indicators on hold.

After dipping early this year, GDP rebounded strongly and consumer spending keeps expanding, largely on the backs of the wealthiest Americans. Similarly, stocks crashed after Trump unveiled his reciprocal tariffs but surged when he pulled back the most aggressive rates while the AI boom fueled tech shares.

But employment has indeed slowed sharply with payrolls growing by just 22,000 in September. Trump’s immigration crackdown is also a factor in this low-hire, low-fire labor market.

Still, even if inflation does head back down, that may not be good enough for voters, who are demanding that overall affordability improve and want to see prices decline, not just rise at a slower pace.

“People are angry about the loss of affordability, and are inclined to blame incumbent governments for this,” Paul Donovan, chief economist at UBS Global Wealth Management, said in a note on Friday. “It is tempting to think of affordability as another version of the ‘cost of living crisis’—but affordability is subtly different, and may linger.”