A Federal Reserve report indicates that President Trump’s tariffs are contributing to higher inflation as companies grapple with absorbing increased costs or passing them on to consumers. The Beige Book report, released eight times annually, assessed overall economic growth as having “changed little” since the prior report. Labor markets remained “largely stable” despite muted demand across most of the Fed’s 12 districts.
The report highlighted that tariffs implemented earlier in the year have impacted prices. “Prices rose further during the reporting period,” the report stated. “Tariff-induced input cost increases were reported across many Districts, but the extent of those higher costs passing through to final prices varied.” Some businesses opted to maintain existing prices to remain competitive, while others reported “fully passing higher import costs along to their customers.”
The escalating trade war, with China restricting rare earth materials and Trump threatening increased tariffs on Chinese imports, adds further complexity. The Beige Book indicated that consumer spending saw a slight dip in recent weeks, highlighting “strong” spending among upper-income earners on luxury items and travel. Lower and medium-income earners were more likely to pursue discounts and promotions.
Looking ahead, expectations improved in certain districts, although the Philadelphia region expressed caution regarding the potential effects of a prolonged government shutdown. The release comes amidst a dearth of economic data due to the government shutdown, with key agencies such as the Labor and Commerce departments largely closed. The Consumer Price Index (CPI), normally released on Wednesday, is now scheduled for release on October 24.
