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As the Federal Reserve signals a slowdown in economic activity across much of the country, newly released data and economic forecasts point to one major culprit: rising trade costs driven by renewed tariff pressure.
While inflation has cooled from its 2022 highs, a new set of headwinds is beginning to form, with the Fed’s Beige Book and OECD reports both highlighting growing concerns about the trajectory of the U.S. economy under the weight of import levies and global trade uncertainty.
Fed Beige Book Paints a Pessimistic Picture
According to the Federal Reserve’s latest Beige Book—an internal survey of businesses across the country—economic activity has weakened in a majority of the Fed’s 12 districts.
In contrast to January, when all districts reported growth, just three reported economic expansion in the latest report, while half experienced outright declines.
The report points to rising costs and price pressures, with many businesses bracing for even higher expenses in the coming months. One florist interviewed by the New York Fed noted the need to adjust flower sourcing due to “rapidly changing costs by source country”—a direct consequence of shifting trade policy and global tariffs.
Notably, businesses in multiple districts are reacting to tariff-driven uncertainty by rewriting contracts and including separate line items for tariff-related costs. In some cases, even tariffs that were removed have left behind sticky price increases that businesses have chosen not to reverse.
Retail Pullbacks, Job Market Uncertainty, and Tariff-Driven Price Hikes
Retailers and auto dealers are among the sectors most affected. The Cleveland Fed reported that many auto dealers saw a short-term surge in sales ahead of expected tariff hikes, anticipating a “tariff sticker shock” that could dampen future demand.
Meanwhile, consumer discretionary spending has begun to pull back, with some buyers trading down from big-ticket purchases to more modest goods.
Employment remains mostly flat across the nation, though the impact varies by industry. While some sectors like construction continue to add jobs, others—particularly restaurants and retailers in urban centers—are pausing hiring plans amid local and national uncertainty.
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Global Implications: OECD Forecasts Slower Growth
Adding to the economic concern, the Organization for Economic Co-Operation and Development (OECD) released a sobering projection this week, forecasting that U.S. GDP growth will fall from 2.8% in 2024 to just 1.6% in 2025, and 1.5% in 2026.
The OECD attributes the sharp decline in part to the rising trade costs associated with President Trump’s updated tariff policies.
While designed to protect American manufacturing and reduce trade deficits, the sweeping tariffs have led to “significant disruptions” in global supply chains and raised costs for businesses across sectors.
The OECD warned that trade uncertainty could also suppress business investment, adding another layer of risk to an already fragile recovery.
Inflation Still a Wildcard
While inflation has cooled from its peak of 9.1% in 2022 to just 2.3% in April, many economists now worry that rising trade costs could reignite price pressures—particularly as more companies begin passing costs onto consumers.
Walmart and Target have both announced price hikes, citing tariffs among the reasons. Even companies like Nike, while less explicit, have increased prices in what they describe as “regular market adjustments.”
Fed officials now face a growing policy dilemma: balancing the threat of a cooling economy with the risk of a new inflationary wave driven not by monetary policy, but by external trade dynamics.
A Trump-Era Tariff Strategy with Mixed Outcomes
President Trump has repeatedly argued that tariffs are a necessary tool to counter foreign manipulation and bolster U.S. industry. His administration’s latest moves, including doubling tariffs on steel and aluminum, are designed to incentivize domestic production and rebalance long-standing trade deficits.
But critics argue that the uncertainty surrounding these tariffs, combined with legal whiplash from recent court rulings, has created confusion for businesses and investors alike.
One federal court ruling briefly struck down many of the tariffs, only to be reversed the next day by a federal appeals court—keeping the levies in place for now.
Bottom Line: Slower Growth Ahead, But With Strategic Purpose
Despite the alarmist tone of global institutions like the OECD, supporters of the Trump administration's trade strategy maintain that short-term pain may be necessary for long-term gain.
By recalibrating trade relationships and prioritizing domestic production, the U.S. can secure its economic sovereignty and rebuild critical industries hollowed out by decades of bad trade deals.
Still, the data is clear: economic growth is slowing, businesses are under pressure, and consumers are already starting to feel the pinch.
As the Fed, businesses, and the American public brace for what's next, the central question remains: Can the U.S. weather the tariff storm—and come out stronger on the other side?
