The United States Federal Reserve has signaled a shift to a more cautious economic outlook, citing rising costs from tariffs and ongoing uncertainty in its latest Beige Book report released on Wednesday.
According to the report, while there was a modest pick-up in economic activity in recent weeks, businesses are expressing concerns. “The outlook was generally described as neutral to slightly pessimistic,” the Fed noted, highlighting that higher import tariffs are pushing up prices across various industries.
Many sectors anticipate that these cost pressures will persist, with expectations that consumer prices could start climbing more rapidly by late summer. Employment has seen a very slight increase, but the uncertainty is causing many companies to hold off on major hiring or layoff decisions. Additionally, stricter immigration enforcement and deportations are impacting businesses in several regions.
Dallas Federal Reserve Bank President Lorie Logan emphasized the need for caution, stating that the central bank will likely keep interest rates steady for the time being. “We need to ensure inflation stays low, especially with the upward pressure from tariffs,” she said on Tuesday.
Echoing this sentiment, Boston Federal Reserve President Susan Collins mentioned she’s in no hurry to adjust the benchmark interest rate amid the current economic uncertainties. While acknowledging that import tariffs might boost inflation, she believes the overall impact might not be as severe as previously feared.
Meanwhile, President Donald Trump has intensified his criticism of Fed Chair Jerome Powell, demanding immediate rate cuts. Although there were speculations about Trump possibly firing Powell, the president told reporters he has no such plans for now but did not entirely dismiss the idea.
A few Fed policymakers are considering the possibility of cutting rates as early as the upcoming July 29-30 meeting to prevent any further weakening in the labor market. However, the majority believe that the job market remains solid. They are hesitant to lower rates, especially when higher tariffs are expected to increase prices in the coming months, potentially undoing progress made on controlling inflation.
