Fed survey shows strains felt by US businesses, households amid tariffs
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The Federal Reserve's Beige Book report little or no growth in economic activity across most of the country in recent weeks.
PHOTO: REUTERS
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WASHINGTON - US economic activity saw little or no growth across most of the country in recent weeks, the Federal Reserve said in a mixed report that highlighted the impact of tariffs and other Trump administration policies on households and businesses as the central bank weighs a cut in interest rates in September.
“Contacts frequently cited economic uncertainty and tariffs as negative factors,” according to the Fed’s “Beige Book” report on Sept 3, a snapshot of the nation’s economic health published two weeks ahead of the Fed’s rate-setting meeting.
“Most of the twelve Federal Reserve districts reported little or no change in economic activity since the prior Beige Book period,” according to the report.
“Across districts, contacts reported flat to declining consumer spending because, for many households, wages were failing to keep up with rising prices.”
“Nearly all districts noted tariff-related price increases, with contacts from many districts reporting that tariffs were especially impactful on the prices of inputs,” according to the report.
As tariffs make their way through the economy, businesses are raising prices to compensate, at least partially, for increasing costs. Fed officials are trying to balance the risk of inflation against concerns about the state of the job market, after revised data pointed to a sharp slowdown in hiring in recent months.
Businesses in several regions were reluctant to hire workers in August because of uncertainty over the economic outlook, the report said.
While 11 of 12 Fed districts described “little or no” net change in employment compared with the prior month, seven districts described firms as “hesitant”, with two districts reporting a rise in layoffs.
“Contacts in multiple districts reported reducing headcounts through attrition – encouraged, at times, by return-to-office policies and facilitated, at times, by greater automation, including new AI tools,” said the Fed report, which comes ahead of the monthly US jobs report on Sept 5.
After holding its short-term interest rate steady in the 4.25 per cent to 4.5 per cent range in 2025, the Fed is widely expected to lower it by a quarter of a percentage point at its Sept 16-17 meeting.
Financial markets and analysts grew more confident in that view after Fed chair Jerome Powell said in August that rising downside risks to the labour market may mean a rate adjustment is warranted, joining several other Fed officials who have made a similar argument.
Mr Powell cited recent signs of weakness in labour market data, including a government report in early August that showed job growth had fallen to a paltry monthly average of 35,000 since May, and a baseline outlook that President Donald Trump’s tariffs will boost inflation only temporarily.
White House pressure
Mr Trump has called on the Fed to cut rates immediately and deeply, and has moved aggressively to try to reshape the make-up of the central bank’s board of governors to make it more likely to heed his demands.
White House economic adviser Stephen Miran, Mr Trump’s nominee to fill a vacancy on the Fed board that unexpectedly opened in August, will have a hearing before the US Senate Banking Committee on Sept 4 as Republicans rush to get him confirmed in time to vote at the Fed’s meeting in September.
Mr Miran has said he backs Mr Trump’s view on rates, and has argued for stronger presidential control over the central bank.
Mr Trump is also attempting to fire Fed governor Lisa Cook, who has voted with the majority of central bank policymakers to keep rates steady in 2025. Dr Cook is challenging her removal in court and remains in her job while that case is pending.
Analysts and other global central bankers warn that Mr Trump’s pressure on the Fed including his unprecedented effort to fire a Fed governor threaten the central bank’s longer-term political independence, widely seen as critical to its ability to fight inflation effectively.
It is not clear, however, that Mr Trump’s efforts will help him in the short term to achieve the sharply easier monetary policy that he wants right now.
Two of Mr Trump’s appointees already on the Fed’s board dissented at the July 29-30 meeting in favour of a rate cut, but neither has said they feel a bigger-than-usual reduction is needed. BLOOMBERG, REUTERS
