US economy sees modest growth, but businesses wary of tariff impact, Fed survey shows

US economic activity has risen slightly but unevenly since mid-January, according to the Federal Reserve’s latest Beige Book report.

While employment has inched higher and prices have increased modestly, businesses and households remain uncertain about how President Donald Trump’s policies will impact future growth, labor demand, and inflation.

The Fed’s survey, compiled from observations across its 12 regional banks, painted a picture of cautious optimism tempered by growing concerns over tariffs, immigration restrictions, and economic policy changes.

Beige Book highlights mixed economic trends

“Six districts reported no change, four reported modest or moderate growth, and two noted slight contractions,” the Fed said in its summary.

“Overall expectations for economic activity over the coming months were slightly optimistic.”

However, businesses across most regions signalled increasing anxiety over Trump’s trade policies.

The latest report featured 47 mentions of “uncertainty,” up from 17 in January, while the term “tariffs” appeared 49 times, more than double its January count.

The survey also noted that concerns over immigration restrictions were influencing labor demand, with businesses in multiple districts warning of potential workforce shortages.

The findings may already be outdated, as the report was completed on February 24—days before Trump’s latest tariff hikes on Mexico, Canada, and China.

Tariffs spark inflation fears and dampen business confidence

On Tuesday, Trump imposed a 25% tariff on most imports from Mexico and Canada, while doubling tariffs on Chinese goods to 20%.

The move triggered immediate retaliation from Canada and China, while Mexican President Claudia Sheinbaum announced plans for countermeasures by the weekend.

Although the White House stated that auto imports through the US-Mexico-Canada Agreement (USMCA) would be exempt for a month, analysts warn that these broader tariffs could slow growth and push inflation higher—posing a dilemma for the Federal Reserve.

The Beige Book already reflected early signs of this economic strain.

The Cleveland Fed reported that “consumer spending was down,” with auto dealers and lenders noting declining confidence due to inflation concerns.

The Atlanta Fed observed that casual dining restaurants saw customers cutting back, skipping appetizers and desserts.

In the Midwest, crop producers expressed uncertainty over federal trade policies, while the Dallas Fed reported widespread concerns over inflation stemming from tariffs.

Businesses cited rising costs, a reduced labor supply due to stricter immigration policies, and cuts to government spending as major economic headwinds.

However, some industries saw potential benefits from deregulation and corporate tax cuts.

Fed unlikely to cut rates as inflation lingers

With inflationary pressures persisting, Federal Reserve officials are expected to keep the benchmark interest rate at 4.25%-4.50% when they meet on March 18-19.

While the labor market remains strong, policymakers are hesitant to lower rates until inflation shows more consistent progress toward the Fed’s 2% target.

The central bank is also waiting to assess the full impact of the Trump administration’s trade and fiscal policies.

Given the rapidly changing economic landscape, the Fed places significant weight on real-time feedback from businesses and communities.

Officials believe such insights can be more accurate than lagging economic indicators, particularly when government policy shifts are creating uncertainty.

For now, the US economy continues to navigate a delicate balance, with businesses hoping for stability even as new policy risks emerge.

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