GMBStaff
15 Oct 25
A Federal Reserve report reveals how Trump's tariffs are driving inflation amid stagnant economic growth, with businesses caught between absorbing costs and passing them to consumers. Trade tensions and a government shutdown further complicate economic stability.
**Trump’s Tariffs Fuel Inflation Amid Stagnant Growth, Fed Report Reveals** A recent Federal Reserve report highlights how President Donald Trump’s tariffs are contributing to rising inflation, as businesses grapple with the dilemma of absorbing costs or passing them on to consumers. The central bank’s *Beige Book*—a survey of economic conditions across its 12 districts—revealed that while overall economic growth remained largely stagnant, price pressures intensified due to trade policies. The report, released on Wednesday, noted that “prices rose further during the reporting period,” with tariff-induced input costs affecting multiple districts. However, the extent to which these costs were passed to consumers varied. Some companies maintained stable prices to remain competitive and avoid alienating inflation-sensitive customers, while others fully shifted the burden to buyers. **Stagnant Economy, Diverging Trends** The Fed’s assessment of the broader economy painted a picture of slow progress. “Overall economic growth changed little” since the last report in September, with labor markets “largely stable” and demand “muted” across most districts. However, the trade war’s impact was evident in pricing dynamics. Notably, some districts reported falling material prices due to slowing demand, contrasting with the broader trend of inflation. The report also underscored growing tensions in U.S.-China trade relations, as China imposed restrictions on rare earth materials and Trump threatened 100% tariffs on Chinese imports. **Government Shutdown Complicates Data Collection** The findings come amid a government shutdown that has disrupted key economic data releases. With the Labor and Commerce departments largely closed, the Bureau of Labor Statistics has mobilized workers to prepare the critical consumer price index (CPI) report, delayed until October 24. This will be the final inflation reading before the Fed’s October 28-29 policy meeting. **Consumer Spending and Uncertainty** While overall consumer spending dipped slightly, the report noted “strong” spending on luxury items and travel by higher-income earners. Lower- and middle-income consumers, meanwhile, sought discounts and promotions. Future expectations improved in some districts, though the Philadelphia Fed expressed caution over the prolonged shutdown’s economic fallout. The *Beige Book* underscores the complex interplay between trade policies, inflation, and economic stability, as businesses and policymakers navigate a landscape shaped by protectionist measures and geopolitical tensions. With the Fed poised to act, the coming weeks will be critical in determining how these pressures evolve.