Federal Reserve Beige Book: U.S. Economic Activity Nearly Stalled, Tariffs Push Up Price Pressures

According to the latest Beige Book released by the Federal Reserve on Wednesday, overall economic activity in the United States has changed little over the past six weeks, with most regions showing "flat or slight declines." As the impact of tariffs on supply chains and prices becomes more apparent, businesses are facing higher costs and are forced to raise prices, while consumers are cutting back on spending due to wage growth lagging behind price increases, further slowing economic growth momentum.

The report indicates that in 11 of the 12 Federal Reserve districts, economic activity has changed little, with one district experiencing a slight decline. Most businesses reported that consumer spending is trending "flat or down," primarily due to wage growth not keeping pace with rising prices, putting greater pressure on household budgets.

Reports from non-profit organizations show that due to rising living costs, low-income groups are increasing their demand for basic needs such as food, housing, and public services. Two car dealerships in the Cleveland area indicated that sales are expected to decline due to affordability issues and tight household budgets.

The report shows that price increases have occurred to varying degrees across all regions, with inflation described as "moderate or modest" in 10 districts, while the other two reported "strong input cost growth."

Almost all respondents mentioned that tariffs have led to price increases, especially in industries with high import dependence. For example, a coffee roaster in the New York area stated that tariffs on Brazilian coffee and other raw materials have impacted the entire supply chain; a locally produced printing equipment manufacturer in the Richmond area reported that its suppliers have raised prices due to tariff pressures, increasing its costs by 5%-15%; farmers in the Chicago area are concerned about rising operating costs in 2026 due to fertilizer tariffs.

Businesses are generally passing on some costs by raising prices, while also controlling expenses through automation, internal restructuring, or layoffs. A chain restaurant in the Dallas area plans to reduce labor costs through automation technology.

In terms of the job market, 11 districts reported that overall employment levels are "almost unchanged," with only one district reporting a slight decline. There has been a noticeable decrease in immigrant labor in several areas, particularly in the construction industries of New York, Richmond, St. Louis, and San Francisco. The Trump administration has recently intensified its deportation policies against illegal immigrants, exacerbating labor shortages.

In white-collar positions, candidates still show a clear preference for remote or hybrid work, but their attitudes toward accepting job opportunities are no longer overly picky. Physical labor positions, such as cooks, waiters, and gardeners, remain relatively easy to find, but the overall number of positions is shrinking. Some businesses are reducing labor costs by not filling vacant positions or using artificial intelligence technology to replace some jobs.

The report notes that inflation rose during the summer, but overall remains at a "moderate or modest" level. However, due to slow wage growth, real purchasing power for households has declined, making consumers more cautious.

The Beige Book indicates that while there are signs of weakness in the labor market, it remains generally stable. Federal Reserve Governor Waller and other officials believe that inflation caused by tariffs is a one-time shock that is expected to fade next year, while the deterioration of the labor market poses a greater economic riskThe weak economic situation reflected in the Beige Book has further increased market expectations for a rate cut by the Federal Reserve in September. Investors generally expect that the Federal Reserve will announce its first rate cut of the year at the policy meeting on September 16-17, in order to support the labor market and stabilize economic growth.

If the August non-farm payroll report performs poorly, it will almost "lock in" the decision for a rate cut in September. Analysts point out that the Federal Reserve may choose to cut rates by 25 basis points as a moderate measure to seek a balance between inflation and employment