Federal Reserve Warns of Economic Uncertainty Amid Trump's Tariffs

The Federal Reserve's Beige Book report, released after U.S. President Trump implemented global tariffs, indicates that while the U.S. economy continues to expand steadily, "widespread uncertainty" could hinder growth in the coming months. The report, published on Wednesday, noted that "economic activity has changed little since the last report, but uncertainty surrounding international trade policy is pervasive across regions."

The Beige Book, published eight times a year, is a crucial tool for the Federal Reserve in assessing economic conditions and deciding whether to adjust interest rates. This report is the first since late February and the initial Beige Book since the Trump administration's large-scale tariff implementation.

The report highlights that "due to increased economic uncertainty, particularly related to tariffs, the economic outlook has deteriorated significantly in several regions."

Trump's tariff policy, dubbed the "Liberation Day" action, has sparked the most severe global trade war since the 1930s. This trade dispute has left American households and businesses uncertain. Economists warn that if trade friction persists, it could drive up inflation, increase unemployment, and even trigger a recession.

Prior to the formal implementation of tariffs, some consumers and businesses preemptively purchased goods to avoid potential price increases. For instance, the "rush effect" boosted U.S. new car sales to their highest level in three years. However, excluding automobile sales, the Federal Reserve noted that consumer spending has actually decreased since late February.

Additionally, Americans are traveling less, and the number of foreign tourists visiting the U.S. has declined. Economists estimate that this trend could cost the U.S. tourism industry hundreds of billions of dollars annually.

The report also indicates that overall employment has slightly increased, but businesses are generally cautious about hiring. While the number of new private sector jobs has risen, employment in government agencies and institutions dependent on federal funding has decreased.

The Beige Book states, "Many regions report that businesses are taking a wait-and-see approach to employment, pausing or slowing hiring until the economic outlook becomes clearer."

Regarding inflation, price increases remain relatively moderate, but many businesses anticipate higher raw material costs due to tariffs. They plan to pass these costs on to consumers but are aware of consumer resistance to price hikes.

Some businesses may be forced to absorb the additional costs themselves, leading to a decline in profits. The Federal Reserve notes that a drop in corporate profits could drag down overall economic performance and potentially lead to job cuts as companies seek to control expenses.