(Reuters) – U.S. economic activity has risen slightly but unevenly since mid-January, employment nudged higher, and prices increased modestly, the Federal Reserve said on Wednesday, with businesses and households expressing continued optimism amid rising uncertainty about how U.S. President Donald Trump’s policies will affect future growth, labor demand and prices.
“Six Districts reported no change, four reported modest or moderate growth, and two noted slight contractions,” the U.S. central bank said in its summary of observations from the commercial and community contacts of each of the Fed’s 12 regional banks. “Overall expectations for economic activity over the coming months were slightly optimistic.”
Known collectively as the “Beige Book,” the document provides a snapshot of the nation’s economic experience and mood two weeks ahead of each Fed policy meeting. Over its 54 pages, there were 47 mentions of uncertainty, up from 17 in the January report, with a doubling of references to tariffs since then.
With all the data collection complete by February 24, it may already be stale.
Trump on Tuesday imposed 25% tariffs on most imports from Mexico and Canada, and doubled tariffs on Chinese goods to 20%, actions that many investors and analysts said went far beyond what they expected. Canada and China immediately retaliated with new import taxes on U.S. goods, and Mexican President Claudia Sheinbaum promised her own response this weekend.
Although the White House on Wednesday said autos coming in through the U.S.-Mexico-Canada trade agreement would be exempt from the tariffs for a month, some Wall Street economists say the new levies augur stronger inflation and slower growth, a combination that could present a difficult policy choice for the Fed.
That challenging mix is already evident in surveys showing rising consumer inflation expectations, slowing business activity, a drop in new factory orders and an increase in prices paid for manufacturing materials.
U.S. central bankers have signaled for now that they will keep the benchmark overnight interest rate in the current 4.25%-4.50% range at their March 18-19 meeting. They want to keep downward pressure on inflation that is making slow but bumpy progress toward their 2% goal, and they view the labor market as healthy and not in need of the support that a rate reduction could deliver.
They also want to see how the Trump administration’s policies, including tariffs but also tax cuts, immigration restrictions, and cuts to federal jobs and spending, will affect the economy in the coming months.
Fed policymakers say that observations directly from communities and businesses can be particularly informative when the economy may be changing quickly, as data in official reports often lags reality by weeks and months.
(Reporting by Ann Saphir; Editing by Paul Simao)
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