By Ann Saphir
(Reuters) -U.S. economic activity and employment were mostly little changed or unchanged in recent weeks while prices rose moderately or modestly, the Federal Reserve said on Wednesday, a mixed report that highlighted the impact of tariffs and other Trump administration policies on households and businesses as the central bank weighs a cut in interest rates this month.
“Contacts frequently cited economic uncertainty and tariffs as negative factors,” according to the Fed’s “Beige Book” report, a snapshot of the nation’s economic health published two weeks ahead of each central bank policy meeting. “Overall, sentiment was mixed among the (Fed) districts. Most firms either reported little to no change in optimism or expressed differing expectations about the direction of change from their contacts.”
Indeed, even in districts where economic activity was reported to have expanded, businesses worried about a reversal.
“Outlooks improved but there was widespread trepidation regarding shifting trade policy, high interest rates, and more restrictive immigration policy,” the Dallas Fed reported, noting that about 20% of firms expect demand for their goods and services to decline over the next six months.
“For some entry-level positions and some workers, wage increases are no longer keeping pace with price increases – especially as firms adjust both workforces and prices in response to tariffs,” said the Philadelphia Fed, which also reported a modest increase in economic activity.
After holding its short-term interest rate steady in the 4.25%-4.50% range this year, the Fed is widely expected to lower it by a quarter of a percentage point at its September 16-17 meeting. Financial markets and analysts grew more confident in that view after Fed Chair Jerome Powell said last month that rising downside risks to the labor market may mean a rate adjustment is warranted, joining several other Fed officials who have made a similar argument.
Powell cited recent signs of weakness in labor market data, including a government report in early August that showed job growth had fallen to a paltry monthly average of 35,000 since May, and a baseline outlook that President Donald Trump’s tariffs will only boost inflation temporarily.
The Fed chief also said he feels that labor market stability means the central bank can “proceed carefully,” a phrase understood to suggest gradual rate cuts.
WHITE HOUSE PRESSURE
Trump has called on the Fed to cut rates immediately and deeply, and has moved aggressively to try to reshape the makeup of the central bank’s Board of Governors to make it more likely to heed his demands.
White House economic advisor Stephen Miran, Trump’s nominee to fill a vacancy on the Fed board that unexpectedly opened last month, will have a hearing before the U.S. Senate Banking Committee on Thursday as Republicans rush to get him confirmed in time to vote at the Fed’s meeting this month. Miran has said he backs Trump’s view on rates, and has argued for stronger presidential control over the central bank.
Trump is also attempting to fire Fed Governor Lisa Cook, who has voted with the majority of central bank policymakers to keep rates steady this year. Cook is challenging her removal in court and remains in her job while that case is pending.
Analysts and other global central bankers warn that Trump’s pressure on the Fed including his unprecedented effort to fire a Fed governor threaten the central bank’s longer-term political independence, widely seen as critical to its ability to fight inflation effectively.
It’s not clear, however, that Trump’s efforts will help him in the short term to achieve the sharply easier monetary policy that he wants right now.
Two of Trump’s appointees already on the Fed’s board dissented at the July 29-30 meeting in favor of a rate cut, but neither has said they feel a bigger-than-usual reduction is needed.
The latest Beige Book summarizes surveys, interviews and observations collected from the commercial and community contacts of each of the Fed’s 12 regional banks through August 25.
In the Fed’s Kansas City district, households were not reducing spending overall but rather “reallocating it toward more affordable or ‘inferior’ goods and services,” as well as taking “staycations” in place of extended travel and returning vehicles within a year to avoid having to make loan payments.
“Contacts in multiple districts reported reducing headcounts through attrition -encouraged, at times, by return-to-office policies and facilitated, at times, by greater automation, including new AI tools,” the report said.
In turn, most districts reported an increase in job seekers, even as half of them noted a decline in immigrant labor availability, with the New York, Richmond, St. Louis, and San Francisco districts highlighting its impact on the construction industry.
In the Fed’s Cleveland district, one law firm said it saw an upside no matter what happens with prices, with increased demand for transactional services if the impact of tariffs is limited and interest rates drop, but “increased demand for restructuring and bankruptcy services” if the impact is large and rates fall.
(Reporting by Ann Saphir; Editing by Paul Simao)
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