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.