President Donald Trump’s tariffs are adding new pressure to inflation as U.S. companies struggle to balance rising import costs with competitive pricing, according to the Federal Reserve’s Beige Book released Wednesday. The report, which surveys economic conditions across the Fed’s 12 districts, said overall growth “changed little” since early September, while labor markets remained stable but subdued.
The Beige Book—published eight times a year—offered one of the few updated looks at the economy amid a continuing U.S. government shutdown that has delayed major data releases. Its findings suggest that trade tensions and tariffs are now a key driver of higher costs throughout supply chains, forcing businesses to make difficult decisions about whether to absorb those costs or pass them along to consumers.
Tariffs Fuel Rising Input Costs
“Prices rose further during the reporting period,” the Fed report said, noting that tariff-induced input cost increases were reported across many regions. The duties, implemented in April and expanded over subsequent months, have affected a wide range of goods—from industrial materials to consumer products.
Businesses described two distinct strategies in response to rising costs: some kept prices steady to remain competitive with inflation-sensitive clients, while others said they were “fully passing higher import costs along to their customers.” A few Fed districts reported exceptions, where weakening demand actually drove down prices for raw materials.
The trade war has intensified in recent days. China recently imposed new restrictions on exports of rare earth materials—essential to high-tech manufacturing—prompting Trump to threaten a new round of 100% tariffs on all Chinese imports. Economists warn the escalation could deepen price pressures and slow business investment heading into the final quarter of the year.
Muted Growth and Consumer Divide
The Fed’s report described a mixed economic picture: modest overall growth but widening differences between income groups. Consumer spending edged lower in most districts, with “strong” activity reported among upper-income households who continued to spend on luxury goods and travel. By contrast, middle- and lower-income consumers focused on discounts and promotions, signaling caution amid persistent inflation and economic uncertainty.
Labor markets were “largely stable,” with hiring demand remaining soft in several districts. Employers said they were reluctant to expand payrolls until there is more clarity around fiscal policy and trade conditions. Some industries, particularly manufacturing and construction, noted delays in projects due to higher material costs.
Data Delays and Inflation Outlook
The release of the Beige Book came at a time when government data has been limited. The shutdown, now in its third week, has suspended most operations at the Labor and Commerce departments, creating uncertainty around key economic indicators. However, the Bureau of Labor Statistics has recalled workers to publish the delayed Consumer Price Index (CPI) report on October 24—a crucial inflation reading before the Fed’s next policy meeting on October 28–29.
The Fed noted that expectations for future growth have improved slightly in some districts, but others—such as Philadelphia—remain cautious about the potential economic fallout of an extended shutdown. For now, central bankers appear focused on balancing inflationary risks from tariffs against the broader slowdown in demand and hiring.
With tariffs raising input costs and consumers feeling the squeeze, the Federal Reserve faces a complex inflation environment ahead of its next meeting. While top earners continue to spend, the broader economy shows signs of strain from rising prices, global trade tensions, and policy uncertainty. Whether the Fed will respond with rate adjustments or maintain its current stance may depend heavily on the delayed CPI data set to arrive later this month.
