Beige Book: More Regions See Economic Slowdown, Inflationary Pressures Persist... Will Rate Cuts Be Delayed?

Immigration enforcement dampens consumption in specific regions

Labor market remains stable... Wages continue to rise

Tariffs drive inflationary pressure

Increased likelihood of delayed rate cuts

The Federal Reserve diagnosed in its March Beige Book, released ahead of the Federal Open Market Committee (FOMC) meeting scheduled for March 17-18 (local time), that the number of regions reporting stagnant or declining economic activity has increased. In addition, as inflationary pressures have been confirmed, the current policy stance of keeping interest rates unchanged is expected to continue for the time being.

According to the February Beige Book released on March 4 (local time), out of the 12 Federal Reserve Banks in the United States, economic activity in seven districts showed a 'slight to moderate increase.' This is a decrease compared to the January survey, which reported increases in nine districts. In contrast, five districts reported stagnant or declining economic activity, an increase from the previous report.

Moderate Increase in Economic Activity... Immigration Enforcement Activities Weigh on Consumption

Overall, consumer spending saw a slight increase but also showed signs of slowing down. Several regions reported signs of weakened consumption due to economic uncertainty and increased price sensitivity.

The report stated, "Continued declines in consumer spending were reported in two districts," adding, "Additionally, many districts recorded weaker sales due to rising economic uncertainty, increased price sensitivity, and reduced spending by low-income households."

AP Yonhap News

In particular, one district noted, "Immigration enforcement activity negatively affected customer demand in urban areas."

Auto sales declined in most districts, with high prices identified as the main cause. In contrast, the manufacturing sector showed relatively solid performance. Manufacturing activity increased in eight districts, with expanded investment in data centers and power infrastructure driving new orders.

As for residential real estate and construction activity, most districts saw a slight decrease in home sales and activity. The report pointed to a lack of housing supply and affordability issues as the reasons.

Tariffs Drive Up Prices... Labor Market Remains Stable

The issue of persistent inflationary pressure remains. According to the Beige Book, prices rose at a moderate pace in eight districts and saw a slight increase in four others.

Notably, tariffs were cited as a factor raising business costs in nine districts. The report stated, "Some firms have passed tariff-related cost increases on to consumer prices, and even companies that previously absorbed rising costs have recently started to increase prices."

However, it was reported that in most districts, companies are maintaining sales prices despite rising costs due to heightened consumer price sensitivity. Overall, companies anticipated that the pace of future price increases would moderate somewhat.

The labor market remained generally stable. Employment held steady without significant change in seven districts, and wages continued to rise at a moderate pace. Some companies were found to be expanding the adoption of artificial intelligence (AI) and automation to improve productivity. However, most companies emphasized that their goal was to enhance productivity rather than to replace workers.

Will Interest Rate Cuts Be Delayed?

This is expected to influence the Fed's monetary policy decisions. In this Beige Book, companies cited cost pressures, confirming that the pace of inflation could slow more gradually than expected.

Recently, Fed officials have shown a cautious stance toward cutting interest rates. John Williams, President of the Federal Reserve Bank of New York, stated at a conference held in Washington, D.C. the previous day, citing research by the New York Fed, that "most of the burden of tariffs has fallen on U.S. businesses and consumers."

He added that the tariff policies of the Donald Trump administration likely increased U.S. inflation by 0.50 to 0.75 percentage points, explicitly pointing to tariffs as a driver of rising prices.

On the same day, Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, mentioned the Iran war and said that his confidence in one interest rate cut this year had decreased. President Kashkari emphasized, "Now that a geopolitical event has occurred, we need to gather much more data," adding, "The key is how long elevated energy prices will persist."

Taking their comments into account, it is highly likely that the Fed will maintain interest rates at current levels for an extended period—a so-called 'high interest rate for longer' stance. However, if the signs of slowing consumption continue to grow, the possibility of a rate cut in the second half of the year remains open.

Meanwhile, the Beige Book is not the official forecast of the Fed but serves as a resource reflecting the business sentiment of local companies and financial institutions. It is used as reference material for monetary policy decisions at FOMC meetings, which determine the U.S. benchmark interest rate.

This content was produced with the assistance of AI translation services.