A recent report from the Federal Reserve, known as the Beige Book, paints a picture of an emerging stagflationary economy, with rising prices and a slowing labor market. The report highlights the impact of US President Donald Trump’s erratic rollout of sweeping tariffs on global trade, leading to a rush to buy autos ahead of higher import duties.
Businesses and households are adapting to the changing economic landscape, but uncertainty and chaos persist. Firms are receiving letters from suppliers and customers warning of potential price increases due to tariffs, leading them to minimize new investments and plan for various cost scenarios.
The report found that 80 mentions of uncertainty and 107 mentions of tariffs were prevalent across the country, with some contacts reporting hints of layoffs to come. The San Francisco Fed said employment levels fell somewhat, and employers reported recent and planned layoffs, while wages grew slightly.
Despite the economic uncertainty, central bankers are cautious in their response, waiting to see how prices and the labor market evolve before taking action. Chicago Fed President Austan Goolsbee is considered dovish but still plans to hold fire until the dust settles.
The report comes as financial markets bet on the Federal Reserve cutting interest rates in June. However, some analysts argue that this may be premature due to Trump’s aggressive trade policy and its impact on inflation.
Overall, the Beige Book highlights the challenges facing the US economy under Trump’s tariffs and stagflation risks, leaving investors and policymakers scrambling to adapt to the changing economic landscape.
Source: https://www.reuters.com/business/us-economic-activity-steady-recent-weeks-uncertainty-pervasive-fed-says-2025-04-23