Fears that President Donald Trump’s tariffs could reignite an inflation spike are fading, as a growing number of economists say U.S. companies are now more likely to absorb those costs rather than risk losing market share.

In an exclusive interview with Benzinga, LPL chief economist Jeffrey Roach highlighted signs of margin compression as businesses absorb the cost of tariffs rather than passing them to consumers — a shift that could reshape both corporate profits and Fed policy heading into 2026.

Fed Could Cut Rates In October, December And January

Roach expects the Federal Reserve to ease rates at its upcoming October meeting, followed by further cuts in December and possibly January as well.

The expert sees three rate cuts in 2026, in line with market pricing reflected in the CME FedWatch tool.

Roach indicated that recent private-sector data, including the Federal Reserve’s Beige Book, point to cooling inflation, especially in goods, even as headline numbers may remain elevated in the short term.

Despite a possible uptick in September and October inflation reports, Roach said these would not derail the Fed’s broader path toward easing.

“The Beige Book is telling us that the inflation picture is mixed.” Roach said.

Roach stressed that companies are increasingly reluctant to pass higher import costs to consumers, opting instead to absorb them.

“It’s not clear that the consumer is going to bear a significant amount of tariffs,” he added.

The outcome, however, is clear: falling business margins, which Roach warned could “weigh a little bit on profits and show up in a softening bull market.”

Banking Sector Bracing For More Credit Stress — But No 2008 Redux

Roach said regional banks may see more cracks emerge as the economy cools, but he dismissed the idea of a financial crisis.

“The banking sector doesn’t have the same type of fragilities of a decade ago,” Roach said.

“We don’t think it’s a Great Financial Crisis type level,” Roach added, citing post-2008 capital improvements in the banking system.

Roach cautioned that labor demand is easing and that, in turn, will show up in softer consumer activity.

Holiday Spending: Discretionary Up Top, Strain Below

Despite economic headwinds, Roach expects a “decent” holiday shopping season, supported by high-income earners who continue to spend on travel and restaurants.

However, he ruled out a repeat of the post-pandemic “revenge spending” boom.

“We’re seeing a deceleration in growth, but it’s not a recession,” he said. The holiday period will reflect that measured slowdown — solid at the top, weak at the bottom.

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Image created using artificial intelligence via Midjourney.