Basri Caneri 
The Beige Book report published by the US Federal Reserve (Fed) reveals that economic uncertainty has increased and price pressures have strengthened. While the word “uncertainty” is mentioned 34 times in the report, tariffs and the decline in consumer spending are particularly noteworthy.
Downward Trend in Consumer Spending
Consumer spending contracted by 0.2% in January, the first contraction since March 2023. The Beige Book notes that price sensitivity has increased in luxury and discretionary spending, while low-income consumers tend to cut their spending. In half of the 12 regions, consumer spending fell, with only two regions recording an increase.
Tariffs and Increasing Cost Pressures
Tariffs and rising costs are increasing price pressure in the manufacturing and construction sectors. According to the report, insurance, transportation and food ingredient costs are rising, with many businesses reporting that they are unable to fully pass these costs on to consumers. However, some firms have already started raising their prices in response to possible tariffs.
Regional Economic Outlook and Credit Market
Regionally, Atlanta, Richmond and Dallas recorded modest growth, while San Francisco and Kansas City experienced a slowdown due to weakness in consumer demand. Business lending in Chicago increased but credit quality fell as loan demand in the banking sector fluctuated.
Impact on Companies
The Beige Book states that uncertainty in the economy is hurting companies’ profitability. 28% of medium-sized firms reported that they were struggling with uncertainty, which caused them to lose 6% of their revenue. Another 45% of companies reportedthat uncertainty directly reduced their profits.
As uncertainty in the economy increases, it remains to be seen what the Fed’s policy will be in the coming period and what the impact of tariffs will be.
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