• Consumers have entered a new phase of pushing back on rising prices brought forth by inflation, supply chain issues and the pandemic, Richmond Fed President Tom Barkin said at the CNBC CFO Council Summit in Washington, D.C. on Wednesday.
• That has led many companies to lower prices or increase discounts in an effort to keep consumers wallets' open and gain market share.
• But more price increases loom due to pressures from potential Trump administration tariffs, Barkin said, and he believes the barrier to increasing prices is now lower than it was historically.

The economy has entered a new phase with consumers able to push back on prices successfully, but new tariffs from President-elect Trump could usher in another round of price increases and after years of inflation, consumers will be more inclined to take it, says Federal Reserve Bank of Richmond CEO and President Tom Barkin.

During the more-than-two-year stretch of inflation that was born out of pandemic shortages and supply chain issues and continued as companies raised prices, consumers largely stayed resilient and continued to spend. However, as consumer price fatigue finally hit a tipping point, companies like Target, Amazon and Walmart announced plans to reduce prices on groceries and goods, aiming to keep consumer wallets open.

"What I started hearing around May, and then increasingly through the summer, was that finally consumers had the emotional capacity to start pushing back," Barkin told CNBC's Steve Liesman at the 2024 CNBC CFO Council Summit in Washington, D.C., on Wednesday. "What we're seeing, I think very strongly now, is [that] consumers are frustrated — they're frustrated by high prices."

Barkin said that amid the supply chain challenges and shortages of recent years, consumers "didn't have the energy" to push back on pricing, but that has changed, something that is being reflected in recent company earnings call commentary.

"The [companies] that seem to be maintaining momentum are [companies] who have put stuff on discount or selling things on promo, the consumers trading down from beef to chicken or moving channels from the mass market grocers to the Walmarts of the world," Barkin said. "People are frustrated, and they're trading down."

Impact of potential Trump tariffs on prices

The threat of proposed tariffs from the Trump administration has many companies, retail trade groups and industry analysts warning that those moves could fuel higher prices on a wide range of purchases. For example, Walmart CFO John David Rainey told CNBC last month that the retailer could have to raise prices on some items if President-elect Trump's proposed tariffs take effect. "Our model is everyday low prices. But there probably will be cases where prices will go up for consumers," Rainey told CNBC.

While the specter of increased prices due to Trump tariffs loom, Barkin said one of the things that he is focused on is the changed relationship he believes that consumers have with price increases compared to during the first Trump presidency.

"If you look forward a year or two, and you start imagining cost increases in sectors either because you've got commodity supply constraints or tariffs coming, I think the bar to raising prices is lower than it was five years ago," Barkin said.

Barkin said that in 2018 and 2019 he met with companies and asked if they were going to pass on Trump tariff-driven cost increases to consumers. "I heard a lot of people say things like, 'Well I'll pass it on where I can, but there's just no way I'm going into Home Depot and giving a price increase. They're not going to accept it.'"

On a recent earnings call, Lowe's CFO Brandon Sink said tariffs "certainly would add product costs," but added "timing and details remain uncertain at this point."

"I just think the barrier to that is lower than it was then," Barkin told Liesman, adding that "people had such recent experience raising prices, and I think the acceptance level is going to be higher because people have accepted prices."

On Wednesday, Trump announced that Peter Navarro will serve as "Senior Counselor for Trade and Manufacturing" in his next White House term,  tasked with helping to "successfully advance and communicate the Trump Manufacturing, Tariff, and Trade Agendas," Trump wrote in a pair of Truth Social posts revealing the pick. Navarro was previously a top trade aide for Trump during his first term a and major proponent of tariffs.

Asked by Liesman if he sees tariffs as inflationary, Barkin said that "at its simplest, if you put a tariff on something, you increase the cost of it; if you increase the cost of it, that's got to increase at some level, some pass through, the price. So, it should do something to increase prices."

However, he said, "inflation, though isn't the same as a price for a particular good going up." Instead, he said, a tariff is an "inflationary pressure," and its impact would depend on how consumers, businesses and the Fed all respond to them.

Overall, Barkin said recent polling conducted by the Richmond Fed suggests that CFOs and businesses are significantly more optimistic about growth going forward, even though it's still unclear what some of the policies will be, including around tariffs.

"You can talk about the 60% tariff on China, for example, but is it actually going to be 60% or is that going to be threatened and then negotiated? Is it going to be on all products or just some products? Is it going to be done for a short period or a long period of time? Is it going to be met with retaliation or not?" Barkin said. "There's so much uncertainty in there, it's just hard to make any calls on how [these] policies could affect the economy, and therefore how monetary policy needs to respond."