A new report from the Federal Reserve showed that U.S. businesses are reporting increased costs due to tariffs, which they expect to largely pass on to consumers in the form of higher prices.
The Federal Reserve on Wednesday released its latest edition of the Beige Book, which summarizes economic conditions in each of the Fed's 12 regional districts and is published eight times a year. Uncertainty over international trade policy is "pervasive" and concerns over tariffs on imported goods, which President Donald Trump has increased in his effort to rebalance global trade, are causing costs to rise for firms and consumers alike.
"Most Districts noted that firms expected elevated output cost growth resulting from tariffs. Many firms have already received notices from suppliers that costs would be increasing," the Fed's national summary said. "Firms reported adding tariff surcharges or shortening pricing horizons to account for uncertain trade policy."
"Most businesses expected to pass through additional costs to consumers. However, there were reports about margin compression amid increased costs, as demand remained tepid in some sectors, especially for consumer-facing firms," it added.
In the Boston district, the Fed noted that "retail and manufacturing contacts alike cautioned that cost increases linked to tariffs, although still to be determined, could result in significant passthrough to their output prices."
"Expected passthrough rates were substantial, with over half of manufacturers projecting a complete passthrough, mostly without lags. One manufacturer shortened the duration of its price quotes to 30 days in anticipation of the need to adjust prices rapidly," it continued.