WASHINGTON — The Federal Reserve’s latest national survey has found that U.S. businesses are growing increasingly concerned about the impact higher tariffs could have on their companies and the overall economy.
The Fed reported that the economic outlook remains positive with growth continuing at a moderate pace in the central bank’s 12 regions.
But its latest survey of economic conditions around the country also found that various industries — from manufacturing to farming and transportation — are worried about possible penalty tariffs on China and those already slapped on imports of steel and aluminum.
The report cites widespread reports that steel prices were already rising, “sometimes dramatically.”
The report, known as the beige book, will be considered by Fed officials when they next meet on May 1-2 to discuss interest rates. The Fed boosted rates at its last meeting in March and the widespread expectation is that the central bank will keep rates unchanged in May but will raise them again in June.
After seven years of keeping its key rate at a record low near zero, the Fed in December 2015 started raising rates at a very gradual pace that has left its benchmark rate at a sill low 1.5 to 1.75 per cent. It signalled last month it expects to raise rates two more times this year. But many private analysts believe the Fed will slightly accelerate its rate hikes to possibly four hikes this year, reflecting stronger growth and rising inflation.
The Fed’s goal is to raise interest rates enough to keep the economy from overheating but not so much that it pushes the country into a recession.
In addition to higher prices for steel, the beige book found that prices were also rising “briskly” for building materials, especially lumber, drywall and concrete. The report said that the Fed’s business contacts generally expect further price increases in the months ahead, particularly for steel and building materials.
The report found labour markets across the country remained tight, reflecting the fact that unemployment has fallen to a 17-year low of 4.1 per cent.
“Contacts continued to note difficulty finding qualified candidates across a broad array of industries and skill levels,” the Fed said. “Reports of labour shortages…were most often cited in high-skill positions, including engineering, information technology and health care as well as in construction and transportation.”
The Fed said businesses were responding to the labour shortages in a variety of ways from raising pay to attract workers to boosting training and increasing the use of automation.
In the discussion on worries about trade tensions, the Fed’s Dallas regional bank reported, “Numerous contracts expressed concern about new tariffs and trade policy uncertainty, although outlooks overall were still positive.”
President Donald Trump announced the higher tariffs on imports of aluminum and steel as a way to protect domestic producers from over-production globally. The Fed’s St. Louis bank reported that some steel and aluminum manufacturers in that region had announced plans to reopen facilities and call back workers.