Tariff Effects Evident, Inflation Pressure Intensifies
The Federal Reserve's latest Beige Book released in October indicates that overall economic growth in the U.S. remains largely unchanged, but inflationary pressures have risen significantly due to the impact of tariffs. Since the Trump administration began implementing tariff measures in stages in April, Federal Reserve reports from various regions commonly mention rising import costs, leaving businesses caught between absorbing costs and passing them on in prices.
The word "tariff" appears 64 times in the report, slightly down from the August report, yet it still reflects its widespread impact on business operations. The manufacturing, construction, and retail sectors have all reported that rising raw material prices are squeezing profit margins, forcing many companies to raise product prices. Meanwhile, some businesses, to retain customers, have had to maintain competitiveness by reducing profit margins or cutting expenses.
The Federal Reserve noted that the cost increases brought by tariffs have not been evenly distributed across industries. Price increases in some consumer goods and durable goods have been significant, while the prices of some basic raw materials have seen a slight decline due to weakened demand.
Tight Labor Market, Uncertain Policy Environment
The report also noted that the U.S. labor market remains tight, particularly in labor-dependent sectors like agriculture, manufacturing, and hospitality. Recent changes in immigration policy have further exacerbated recruitment challenges. Although overall employment levels remain stable, businesses generally report rising recruitment costs and increased staff turnover, with some regions even experiencing record-high job vacancy rates.
However, as the U.S. government entered the third week of a "shutdown" due to a budget impasse, updates to economic data have been disrupted, leading to greater challenges for the Federal Reserve in policy formulation. Key indicators, including non-farm employment and retail sales data, have been suspended, forcing policymakers to rely more on qualitative information from local Federal Reserves and business feedback.
Distinct Consumer Split, Pressure on Middle and Low-Income Groups
The report shows a structural split in U.S. consumer spending. High-income groups continue to actively spend on luxury goods, travel, and high-end services, while middle and low-income groups are more inclined to maintain their consumption levels through discounts, coupons, and promotions. The inflationary pressures have further squeezed the disposable income of low-income households, posing a drag on economic growth.
Consumer activity has slightly rebounded in some regions but remains generally sluggish. Businesses widely report increased sensitivity to price rises among consumers, particularly in food, housing, and transportation sectors.
Rate-Cut Expectations Intensify, Economic Outlook Remains Complex
Federal Reserve officials remain divided on future monetary policy. Although most market participants bet on another 25 basis points rate cut at the October 28-29 meeting, some policymakers believe that the inflation pressures brought by tariffs may limit the scope for policy easing.
The Philadelphia Fed's report points out that the government shutdown is undermining business confidence, while Federal Reserve Chairman Powell has stated that he will closely monitor feedback from businesses and community leaders to assess the true state of economic momentum.
Furthermore, the U.S. Bureau of Labor Statistics plans to release the delayed September Consumer Price Index (CPI) report on October 24, which will be a critical reference point ahead of the Federal Reserve meeting.
Overall, the Beige Book presents a complex picture of the U.S. economy: tariffs are pushing up prices, the labor market remains tight, consumer spending shows clear divisions, and policy uncertainty continues to hinder growth. The market generally believes that the challenge for the Federal Reserve in balancing economic stability and controlling inflation is significantly increasing.
