Tariff-Driven Uncertainty Weighs on US Economic Conditions, Fed Reports

Highlights:

• The Federal Reserve’s Beige Book indicated widespread unease linked to shifting trade policies.

• Economic activity remained largely unchanged, with slight to modest declines across most districts.

• Firms reported rising supplier costs and anticipated passing price increases on to consumers.

The latest Beige Book from the Federal Reserve, compiled through mid-April, revealed broad uncertainty surrounding international trade, particularly tariff-related developments. Reports from all twelve Federal Reserve districts flagged these issues as influencing economic sentiment. Numerous districts conveyed worsening outlooks, with business contacts expressing concern over inconsistent policy direction.

The report documented that many firms across sectors were unsure how to proceed, especially regarding hiring and future capital spending. This caution was attributed primarily to evolving trade dynamics, prompting some organisations to freeze hiring plans or begin layoff preparations.

Economic Activity Shows Minimal Change

Across the United States, economic conditions were broadly stable. The Beige Book noted that overall activity changed little compared to the previous reporting period. Most districts described either flat or slightly declining conditions. A minority of regions experienced slight growth, though this was not widespread.

Consumer spending presented a mixed picture. Several districts observed an increase in purchases of vehicles and non-durable items, driven in part by expectations of higher future prices. In contrast, non-automotive retail spending saw a reduction. Reports cited a shift in consumer behaviour as households advanced some purchases to avoid anticipated cost increases.

Price Pressures Evident Across Industries

Firms across multiple sectors reported receiving notices from suppliers regarding upcoming price hikes. These pressures, driven by input cost inflation and shifting trade terms, led many businesses to plan corresponding adjustments to their own pricing. The cumulative effect contributed to upward pressure on consumer prices.

The report described broad inflationary trends without indicating a significant acceleration. However, the continued pass-through of higher input costs to end consumers remained a key concern among business contacts.

Labour Market Conditions Remain Mixed

Employment trends varied across the country. While overall job numbers changed little, a few districts noted slight gains. Other regions, however, recorded employment reductions, particularly within government agencies and non-profit groups reliant on public funding.

A growing number of businesses appeared to adopt a cautious approach to staffing. Some organisations paused recruitment efforts pending greater clarity on economic conditions, while others reportedly began preparations for workforce reductions. This hesitance was often linked to broader economic and trade policy concerns rather than sector-specific challenges.

Language of the Report Highlights Trade Concerns

The frequency of certain terms in the report illustrated the prominence of trade-related issues. The word “tariff” appeared more than twice as often as in the previous edition, underscoring the extent to which trade policy dominated discussions across districts. Similarly, references to “uncertainty” increased substantially, reflecting the depth of concern voiced by business and community contacts.

The Beige Book, compiled from anecdotal and qualitative input from regional contacts, does not include hard economic data. However, it serves as an important gauge of sentiment and short-term business trends across sectors, including manufacturing, retail, construction, and financial services. The latest edition underscores the degree to which shifting trade policy continues to shape sentiment and decision-making across the US economy.