Fed’s Beige Book Signals Slowing U.S. Economy as Tariffs Drive Caution, Weigh on Hiring and Prices

The U.S. economy has shown signs of contraction over the past six weeks, as detailed in the Federal Reserve’s latest Beige Book report. Economic activity declined slightly since late April, with widespread caution among consumers and businesses. This hesitancy is largely driven by concerns about tariff-related price increases and broader economic and policy uncertainty across all Federal Reserve districts.

Hiring Flat Amid Rising Costs And Tariff Pressures Affecting Labor And Prices

Hiring across most Federal Reserve districts remained largely unchanged, with several districts reporting flat employment levels. Although the number of job applicants grew and turnover rates declined, there was an overall decrease in labor demand. Indicators such as reduced hours worked, fewer overtime opportunities, hiring pauses, and plans for staff reductions were noted, along with some sector-specific layoffs that were not widespread.

Prices continue to rise at a moderate pace, but many businesses expect costs to accelerate further in the near future. Tariffs are a significant factor, with all districts reporting upward pressure on costs and prices due to increased tariff rates. While some businesses might absorb higher costs by reducing profit margins, others plan to implement temporary fees or surcharges. Most expect to pass on tariff-related costs to consumers within three months.

Evolving Trade Policies And Tariffs Impact Regional Economic Growth And Business Confidence

The report covers a period of evolving trade policies, including President Trump’s announcement in early May to relax certain reciprocal tariffs against China, which briefly boosted market confidence. Despite this, concerns remain about the inflationary effects of tariffs and their potential to slow hiring and overall economic growth. Mentions of tariffs increased in the latest report, underscoring their continued influence on business sentiment.

Economic activity varied by region, with Boston, New York, and Philadelphia experiencing declines, while Richmond, Atlanta, and Chicago reported some growth. Notably, New York showed heightened uncertainty and significant tariff-driven cost increases. Meanwhile, Richmond saw a slight uptick in hiring despite federal government payroll reductions, highlighting mixed regional responses to ongoing economic challenges.