More Frequent References to Tariffs Than in the Previous Report
Rising Economic Uncertainty
Constraints on Decision-Making for Businesses and Households
The United States Federal Reserve (Fed) stated in its Beige Book, released on June 4 (local time), that economic activity across the United States has generally contracted over the past six weeks as a result of President Donald Trump's tariff policies. Additionally, the Fed analyzed that the increased cost burden due to higher tariffs and policy uncertainty are constraining decision-making for both businesses and households.
In this report, the Fed noted, "Since the previous report released on April 23, economic activity has declined slightly," and added, "Economic and policy uncertainty has increased in all Fed districts, causing both businesses and households to hesitate and adopt a cautious approach in their decision-making."
This report was compiled based on regional economic trends collected up to May 23 and is typically published about two weeks before the Federal Open Market Committee (FOMC) meeting, where the Fed makes its monetary policy decisions.
The Fed stated, "In half of the 12 Federal Reserve districts, a slight to moderate slowdown in economic activity was reported." It also noted that three districts saw no change, while the remaining three experienced slight growth. In particular, manufacturing activity declined slightly during the survey period, and personal consumption showed mixed trends depending on the region. While most regions experienced either a decrease or stagnation in consumption, some regions saw an increase in spending on items expected to be affected by tariffs.
Regarding the labor market, the Fed assessed that "there was generally no change compared to the previous report." Most regions reported flat employment levels, while some regions saw a decrease in labor demand, hiring freezes, reduced working hours, and layoff plans. Wages continued to rise at a moderate pace, and in some regions, the increase in the cost of living was cited as a factor driving wage growth.
Although the pace of price increases was assessed as "moderate," it was commonly pointed out that most regions faced strong cost pressures due to higher tariffs. The Fed stated, "Companies plan to pass on higher costs from tariffs to sales prices, mostly within the next three months." Some companies are responding by raising prices on all items or reducing profit margins, and there have also been cases of introducing temporary fees or additional charges. In this Beige Book, tariffs were mentioned 122 times, an increase from 107 mentions in the previous report.
This report was compiled as President Donald Trump introduced changes to tariff policies. In early May, President Trump announced plans to ease ultra-high tariffs on China, and in response, China also took countermeasures, leading to growing expectations of an easing in the tariff conflict. As a result, there was a rebound in stock prices on Wall Street and the market showed signs of stabilization. However, concerns remain about the inflationary effects of tariffs and the possibility of an economic slowdown.
Fed Chair Jerome Powell also reaffirmed at a press conference following the monetary policy meeting on May 7 that "if the recently announced large-scale tariff increases persist, they could lead to higher inflation, slower growth, and rising unemployment," and emphasized that "it is necessary to wait and see until the impact of tariffs on the economy becomes clearer."
Meanwhile, the Fed will hold the Federal Open Market Committee (FOMC) meeting on June 17-18 to determine the direction of monetary policy. As of this date, the federal funds futures market reflected a 96% probability that the Fed would keep the benchmark interest rate unchanged at the current 4.25-4.50% range at the May meeting.
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