The “Pass-Through” Lag: GS research suggests that in 2025, U.S. businesses absorbed the majority (roughly 64%) of tariff costs to protect market share. They estimate that by late 2025/early 2026, this burden shifts dramatically, with consumers bearing up to 67% of the cost.

Core PCE Projection: They estimate that without tariffs, core inflation would already be around 2.3%. Tariff pass-through is what’s keeping it elevated near 3.0% currently.

The 2026 Fade: Hatzius expects the year-over-year impact to “diminish sharply” in H2 2026 due to base effects. Essentially, once the higher prices are baked into the previous year’s data, the “rate of change” (inflation) will drop, allowing Core PCE to fall toward 2.2% by year-end 2026.

Strategic Take: Because they see the inflation as “resolved” (technical rather than structural), they remain more dovish, forecasting the Fed could cut rates more than the market expects in 2026.

Business Intentions: Santander notes that recent corporate earnings calls indicate a massive wave of price hikes planned specifically for early 2026 as “pre-tariff inventory” finally runs out.

Headline Inflation: They project inflation to hover stubbornly around 3% for the duration of 2026, rather than falling back to the 2% target quickly.

Components of Concern: Unlike GS, which focuses on the math of base effects, Santander highlights that the combination of rising goods prices (tariffs) and sticky shelter costs creates a floor that prevents inflation from normalizing in the first half of the year.

Strategic Take: This “sticky” outlook is why Santander’s Stanley suggests the Fed will find “justification to remain on hold” for the next several months, as the data remains too messy to declare victory.