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Fed Outlook Pessimistic on Loss of Migrant Labor, Rising Tariff Impact
By Reuters | 16 Jul, 2025
Businesses complain to the Federal Reserve about growing difficulties from loss of immigrant labor and disruptions as more tariffs go into effect.
U.S. businesses told the Federal Reserve in June and early July that the loss of immigrant labor is adding to their struggles with the effects of fast-changing trade policies as the Trump administration's economic strategies began gaining traction.
The U.S. central bank's latest snapshot of the economy, released on Wednesday, showed activity picked up in recent weeks, but the outlook was "neutral to slightly pessimistic" as businesses reported that higher import tariffs were putting upward pressure on prices.
"Contacts in a wide range of industries expected cost pressures to remain elevated in the coming months, increasing the likelihood that consumer prices will start to rise more rapidly by late summer," according to the Fed's "Beige Book" report, which was based on surveys, interviews and observations collected from the commercial and community contacts of each of the central bank's 12 regional banks through July 7.
All districts reported the impact of trade policy, with only a few examples of businesses citing benefits, including from potential reshoring of manufacturing.
Many mentioned the effect of price increases, already seen or expected soon, and, in some cases, a slowdown in business.
"A metal fabricator reported that current business volumes were stable, but there 'appears to be an ominous volume cliff ahead which is signaling a dramatic downturn,'" the Minneapolis Fed reported.
"Some businesses have raised prices ahead of imposed tariffs," the Atlanta Fed said. "Others said they were waiting to raise prices until they had more clarity on trade policy, which puts pressure on margins but minimizes price volatility. Several contacts noted they were still working through pre-tariff inventories, thus delaying price adjustments."
Employment was reported to have increased very slightly, the Fed said, and "many contacts expected to postpone major hiring and layoff decisions until uncertainty diminished."
Immigration enforcement and deportations, which are a key pillar of President Donald Trump's policy framework, appeared to hurt businesses in a number of regions.
"A construction company reported that the lack of workers was slowing project completion, and a landscaping company reported that they were unable to fulfill more than half of their customer requests," the St. Louis Fed reported.
"Some small seasonal businesses reportedly decided not to reopen due to the lack of available immigrant workers," according to the New York Fed.
TRUMP'S PRESSURE
Fed policymakers have kept their policy rate in the current 4.25%-4.50% range since December and are widely expected to leave it there at least until September as they wait to see how the economy responds to trade and other policy changes.
"Overall business activity was up in the last month, but the outlook was slightly more pessimistic," said Jeffrey Roach, chief economist at LPL Financial. "We should be watchful for signs of margin compression at the business level, financial stress via rising delinquency rates, and a sluggish housing market as inventories rise."
Trump has harshly criticized Fed Chair Jerome Powell and demanded the central bank cut rates immediately. Bloomberg reported earlier on Wednesday that Trump is likely to fire Powell, but the president later told reporters he was not planning to do so even as he unleashed a fresh round of criticism of the Fed chief's stewardship and declined to completely reject the possibility of ousting him.
A couple of Fed policymakers have said they'd consider cutting rates as soon as the July 29-30 meeting to head off any further labor market weakening.
Most U.S. central bankers, however, believe the job market remains solid despite some signs of cooling, like a recent rise in continuing unemployment claims and a slowdown in job growth, and are unwilling to lower rates when they expect that the highest import duties in decades will drive up prices in coming months and potentially undo hard-won progress on inflation.
In a sign that process is underway, U.S. consumer prices rose by the most in five months in June, with the prices of some largely imported goods, including apparel, home furnishings, toys and sporting goods, driving the increase.
Wholesale prices for June, however, came in on the soft side. Economists now estimate the Personal Consumption Expenditures Price Index excluding food and energy items, which the Fed tracks for its 2% inflation target, will remain at 2.7% on a year-over-year basis in June.
Dallas Fed President Lorie Logan is among the U.S. central bank officials who expect the tariffs' impact on inflation will only become more clear in the fall; Boston Fed President Susan Collins and others have said it may turn out that tariffs won't boost inflation as much as feared.
To figure out exactly what may happen, Fed policymakers say they are paying special attention to the day-to-day experiences of people and businesses like those highlighted in the Beige Book.
(Reporting by Ann Saphir; Editing by Paul Simao)
"Contacts in a wide range of industries expected cost pressures to remain elevated in the coming months, increasing the likelihood that consumer prices will start to rise more rapidly by late summer."
An eagle tops the U.S. Federal Reserve building's facade in Washington, July 31, 2013. REUTERS/Jonathan Ernst/File Photo
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