Fed Beige Book: Economic Activity Slips Amid Tariff-Driven Uncertainty — Evening Brief – 06.04.25 

The latest Beige Book underscores a key tension facing Federal Reserve policymakers: inflationary pressures tied to tariffs are rising, even as broader economic activity softens and labor market conditions cool. 

With price hikes increasingly expected by businesses and a resurgence in cost pass-through, the Fed may find it harder to justify rate cuts in the near term—especially if tariff-driven inflation proves persistent. At the same time, stagnating employment and soft consumer spending bolster the case for policy accommodation to cushion growth risks. 

U.S. economic activity declined slightly since the Federal Reserve’s last Beige Book, with six of 12 districts reporting modest slowdowns and the remainder showing either no change or slight growth, according to the central bank’s latest regional survey based on data collected through May 23, 2025. 

Uncertainty surrounding President Donald Trump’s evolving tariff policy weighed heavily across all districts, with businesses and consumers alike exhibiting caution. “Elevated levels of economic and policy uncertainty… have led to hesitancy and a cautious approach to business and household decisions,” the Fed noted. 

Although the national outlook remains slightly pessimistic overall, several districts reported marginal improvement, while others signaled a worsening outlook. Consumer spending, which drives more than two-thirds of GDP, was largely flat or slightly down, though some districts reported consumers accelerating purchases of goods likely to be affected by new tariffs. 

Price pressures increased moderately across most regions, driven by rising input costs linked to tariffs. Businesses responded in varied ways, including selective or broad-based price hikes, margin compression, and temporary surcharges. Several districts characterized these cost increases as “substantial,” and many firms expect to pass on higher prices within the next three months. 

The labor market remained subdued, with employment largely flat across most districts. Three reported slight-to-modest increases, and two saw slight declines. All districts pointed to weakening labor demand, citing reduced hours, hiring freezes, and planned layoffs. 

Districts reporting declines included Boston, New York, Philadelphia, Minneapolis, Kansas City, and San Francisco. Those showing stable or slightly improved conditions were Dallas, St. Louis, Chicago, Atlanta, Richmond, and Cleveland. 

The central bank is likely to stay on hold in the coming meetings, adopting a wait-and-see approach until it can better gauge the impact of policy uncertainty and trade actions on the inflation-growth tradeoff. A protracted period of “higher-for-longer” interest rates could persist unless labor weakness broadens, or financial conditions tighten abruptly.