Key Takeaways
- Businesses are passing tariff costs on to consumers, according to the Federal Reserve’s “Beige Book” report released Wednesday.
- A compilation of anecdotal reports from around the country showed higher tariff-related cost pressures.
- The report provides some insight into whether U.S. consumers will pay for most tariffs or if foreign exporters will shoulder the costs.
There’s less “uncertainty” in the economy these days, and more belief that higher prices are on the way because of President Donald Trump’s tariffs.
Thats according to the Federal Reserves Beige Book report released Wednesday. The report compiles anecdotes from leaders and business owners in the banking systems 12 regional districts. Businesses reported widespread price increases and passing many of those costs on to consumers. The tariffs, which include a 50% duty on most imported steel, appear to have hit construction companies and manufacturing harder than other industries.
In all twelve Districts, businesses reported experiencing modest to pronounced input cost pressures related to tariffs, especially for raw materials used in manufacturing and construction, the report said. Many firms passed on at least a portion of cost increases to consumers through price hikes or surcharges, although some held off raising prices because of customers’ growing price sensitivity, resulting in compressed profit margins.
The report shed some light on the ongoing debate about who will pay for Trumps wide-ranging import taxes, which are raking in billions for the government every month.
Price pressures have been slow to arrive since the first wave of tariffs went into effect in March, but they were evident in the government’s official inflation report for June. If the Beige Book is anything to go by, the trend could accelerate as the summer continues.
Contacts in a wide range of industries expected cost pressures to remain elevated in the coming months, increasing the likelihood that consumer prices will start to rise more rapidly by late summer, The report said.
Uncertainty about the future remained a major theme, but less so than in recent months. There were 63 mentions of uncertain or uncertainty, down from 80 in June. Overall economic activity increased slightly between May and early July, but the outlook for the future called for flat growth or a slight slowdown in most districts, the report said.
The Fed has held off on cutting its key interest rate this year, much to the ire of Trump, because of concerns that lower borrowing costs could set off a fresh round of inflation. The latest report could encourage Fed officials reluctance to cut rates.
“The Beige Book hints at a mild improvement in the economy, while suggesting that the inflationary impact of tariffs is merely delayed, reinforcing the Fed’s patient approach,” Sal Guatieri, senior U.S. economist at BMO Capital Markets, wrote in a commentary.
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