Prices are rising and economic activity has begun to slow across parts of the nation as businesses and households try to adapt to U.S. President Donald Trump's erratic rollout of sweeping tariffs aimed at reshaping global trade, a report Wednesday from the Federal Reserve showed.
The "Beige Book," as the report is known, captured early fallout from Trump's policies, describing a rush to buy cars ahead of higher import duties. But activity ebbed otherwise as firms scrambled to stay apace of change and avoid big investments amid what some described as chaotic conditions. There were accounts of prices that were changing quickly or about to rise sharply, and hints of layoffs to come.
"Uncertainty around international trade policy was pervasive across reports," the U.S. central bank said in its latest snapshot of the nation's economic condition, based on surveys, interviews and observations collected from the commercial and community contacts of each of the Fed's 12 regional banks. "The outlook in several Districts worsened considerably as economic uncertainty, particularly surrounding tariffs, rose."
As a way to capture the economic reality and mood two weeks ahead of each Fed policy meeting, the Beige Book has rarely been better timed. This one is based on information collected through April 14, a period that included a rapid escalation of global trade tensions.
Fed Chair Jerome Powell has said the report is critical in shaping his own understanding of where things are headed.
"Flat" was how Cleveland Fed officials described the regional economy, with construction industry contacts saying that a recent uptick in demand would likely fade. "Contacts expected a slowdown in demand over the coming months due to increasing construction costs associated with tariffs and uncertainty in the broader economy."
The Richmond Fed described a coffee roaster reporting historic cost increases, a sheet metal fabricator unsure about future orders due to steel tariffs leading to price increases, and a military equipment manufacturer reporting conditions being “too chaotic” to make any decisions on future investments.
Firms said "they were receiving letters from suppliers and sending letters to their customers warning that prices could increase in the near future due to tariffs. Several businesses said that until they had a better idea of how tariffs might impact them, they were minimizing new investments and planning for various cost scenarios," the Richmond Fed said.
The Chicago Fed reported one machinery manufacturer's vendors were changing prices on a daily basis.
Officials at the Atlanta Fed noted hints of layoffs to come, saying a small but increasing share of contacts noted plans for slight reductions in force as a result of softening demand or mounting cost pressures, with some contacts saying uncertain trade policy could cut into demand and trigger additional downsizing. The St. Louis Fed also said firms were "reporting the possibility of a reduction in force."
Powell and other Fed policymakers say the tariffs will likely lead to both higher inflation and slower economic growth, a tricky mix because the central bank's policy lever - the control of short-term interest rates - can only fight one of those problems at a time.
Some early signs of this toxic stagflationary mix were evident in the Beige Book as well.
The San Francisco Fed said for instance: "Employment levels fell somewhat, and employers across industries and geographies reported recent and planned layoffs. Wages grew slightly. Overall prices rose modestly, and price pressures intensified for a wide range of imported goods and materials."
For now, central bankers plan to wait to see where Trump's tariffs end up and how prices and the labor market actually evolve before taking any action.
Even Chicago Fed President Austan Goolsbee, considered among the more dovish of Fed policymakers, says he wants to hold fire until the dust settles, especially with the 4.2% unemployment rate indicating a still-solid labor market, and inflation, estimated at 2.3% in March by the Fed's preferred measure, nearing the Fed's 2% goal.
Some cracks have appeared. Household and business confidence has dived, and surveys show families expect inflation to rise over the next year even as most indicators show longer-term inflation expectations, which the Fed feels can influence actual inflation, remain stable.
Trump has attacked Powell for not cutting rates, accusing the Fed chair of courting an economic downturn that most analysts say is becoming more likely due to Trump's trade policy that is both more aggressive and less predictable than expected.
Financial markets are betting the Fed will start cutting rates in June. The Fed's next rate-setting meeting is May 6-7, and central bankers are expected to leave the policy rate in its current 4.25%-4.50% range.
The Beige Book contained 80 mentions of uncertainty, nearly twice as many as the last report, and 107 mentions of tariffs.
But there were other concerns besides trade. Contacts of the Richmond Fed reported layoffs due to spending cuts at the federal government, including for contractors. In Montana, the Minneapolis Fed reported, "a building trades labor contact attributed the growing number of 'people on the bench' to the slowdown of federally funded projects."
