WASHINGTON (Reuters) -Aggressive shopping  by consumers may mute the impact of tariffs on inflation but could also lead to a cycle of falling demand and rising unemployment, Richmond Fed president Tom Barkin said on Tuesday, while adding he is hopeful a sharp rise in the jobless rate will be avoided because household spending has held up well so far.

Barkin, in prepared remarks to a health group in Chicago, said he felt some of the earlier "fog" that clouded the economic outlook is lifting with the passage of a major tax bill, more visibility on changes in immigration, and the finalization of tariff and trade deals by the Trump administration.

The net outcome, he said, will now hinge on how consumers respond to any emerging price pressures. He suggested that so far their shift to bargain hunting, an earlier wave of spending to front-run anticipated tariffs, and other actions may actually be helping to mute price pressures.

"Amid all the talk of tariffs and higher goods prices to come, we've seen people stock up on iPhones and cut back on services, such as air travel and lodging. If we see this kind of demand destruction more broadly, the inflationary impact of tariffs would be less than many anticipate," Barkin said.

New data showed July consumer price inflation largely in line with expectations, with a measure of "core" or underlying inflation rising to 3.1%.

The risk, Barkin said, is that consumers pull back so sharply that "businesses will see volumes drop and margins squeezed. They will look for costs to cut. Employment could take a hit as a result,"

However, he feels that outcome can be avoided given that businesses have been reluctant to shed staff, and given the likely slower growth in labor supply from tightened immigration policy and ongoing retirements among older workers.

"Job gains have slowed recently, which is certainly worth watching. But I'm hopeful that even as businesses face cost and price pressure, they'll largely avoid the type of large layoffs that would spike unemployment," he said.

Barkin is not a voter this year on interest rate policy, but said he felt the current benchmark rate of 4.25% to 4.5% is "well positioned" to respond to either rising inflation or rising unemployment, both of which remain possible.

"We may well see pressure on inflation, and we may also see pressure on unemployment, but the balance between the two is still unclear," he said. "As the visibility continues to improve, we are well positioned to adjust our policy stance as needed."

(Editing by Chizu Nomiyama )